WORLD - The global economy is expected to grow at a slower pace over the next two years as the effects of the ongoing conflict in the Middle East offset gains from rapid advances in artificial intelligence (AI), according to the International Monetary Fund (IMF).
In its latest World Economic Outlook Update, the IMF projects global growth of 3.0 percent in 2026 and 3.4 percent in 2027, down from the average growth rate of 3.5 percent recorded in 2024 and 2025. While the forecasts remain broadly unchanged from earlier estimates, significant differences are emerging among countries based on their exposure to energy markets and participation in the global technology sector.
Two Major Forces Driving the Economy
The IMF identified two major forces shaping the global economy. The first is the negative impact of the war in the Middle East, which has disrupted energy supplies and increased commodity prices. The second is a strong technology-driven expansion fueled by AI development and adoption, which is boosting investment and exports in countries integrated into global technology supply chains.
Rising Energy Prices and Inflation
Energy prices remain significantly above prewar levels despite some easing from earlier peaks. Oil prices are approximately 25 percent higher than before the conflict began, while natural gas prices have risen sharply in parts of Asia and Europe. Rising energy costs have pushed global inflation higher, with headline inflation expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026 before falling to 3.9 percent in 2027.
Technology Sector Drives Growth
Countries benefiting from the AI boom have outperformed expectations. South Korea, Taiwan, Malaysia, and Thailand have experienced strong growth due to increased demand for semiconductors and AI-related hardware. South Korea’s economy, for example, recorded growth far above previous forecasts, driven by booming technology exports despite higher energy costs.
By contrast, many energy-importing developing countries are facing weaker economic performance. Higher fuel and food prices have increased pressure on households and governments, particularly in low-income nations with limited access to global technology markets.
Risks to the Global Outlook
The IMF warned that risks to the global outlook remain tilted to the downside. A renewed escalation of conflict in the Middle East could further disrupt supply chains, increase commodity prices, and tighten financial conditions worldwide. Trade fragmentation and excessive optimism surrounding AI-related investments also pose potential threats to economic stability.
However, the report highlighted several positive possibilities. Faster normalization of energy markets, stronger-than-expected technology investment, and improved international cooperation could support higher growth and lower inflation than currently projected.
The IMF urged policymakers to focus on maintaining price stability, rebuilding fiscal reserves, and investing in energy security and digital infrastructure. It also called for stronger international cooperation to reduce geopolitical tensions and ensure sustainable long-term economic growth.
Although the global economy continues to face significant challenges from geopolitical tensions and rising inflation, advances in AI and technology are providing important support for growth. The balance between these opposing forces will largely determine the direction of the world economy in the coming years.
