IMF sees milder global slowdown as AI boom offsets war hit — warns resilience is nearing limits

The IMF raised its 2026 global growth forecast because AI-related investment created a powerful new source of demand. Spending increased activity even as the Middle East war, higher energy costs, and trade tensions weakened other parts of the economy. The upgrade was modest, from 3% to 3.1%, and still below last year’s 3.5% growth.

The mechanism is direct. Companies are investing heavily in semiconductors, data centers, and power generation. That spending supports suppliers, workers, and related industries before any broad productivity gains from AI appear. The IMF also said financial markets remained largely calm, partly because of AI-related optimism.

This resilience may not last. Countries have used fuel diversification and strategic reserves to contain the energy shock, but those buffers are narrowing. Oil reserves are falling by about 2.7 million barrels daily. If energy constraints worsen, they could weaken the AI-led momentum and reduce future growth.

An AI investment boom means companies and investors rapidly increase spending on the hardware and infrastructure needed to develop and use AI. The IMF identifies semiconductors, data centers, and power generation as major targets. This matters because investment itself creates economic activity, even if AI’s promised efficiency gains arrive later.

The mechanism works through demand. Semiconductor producers receive more orders, construction firms build data centers, and energy companies expand power capacity. These projects require workers, equipment, and services. Their suppliers also gain business. The spending therefore supports output and incomes before the technology produces economy-wide productivity improvements.

The article describes this as a large, front-loaded demand shock. It helped global activity hold up in the first half of the year, while Taiwan’s growth is forecast at 10.7%, supported by semiconductor demand. However, the boom can strain energy supplies and raise financial risks if expected returns disappoint.

The figure means global expansion is being produced by a much smaller group of economies. In April, 54 economies accounted for the same 95% share of global growth. Now, only 32 do. This concentration signals that recovery is uneven rather than broadly shared across countries.

The mechanism is exposure. Economies supplying AI-related goods, especially semiconductors, are benefiting from strong demand. Countries less affected by the war’s energy and supply disruptions are also holding up better. Taiwan is forecast to grow 10.7%, and South Korea 3.3%, helped by semiconductor demand. The United States is projected to grow 2.3%.

Other economies face weaker conditions. The euro zone is estimated to grow only 1.1% this year, while the Middle East and Central Asia are projected to contract 0.3%. The pattern could persist if AI investment remains strong but energy costs and geopolitical disruptions continue to weigh on other regions.

Energy-importing countries are hit because costlier fuel raises the value of what they must buy from abroad. The higher import bill can weaken national income and worsen trade pressures. At the same time, expensive energy raises household costs, leaving people with less real income for other purchases.

The mechanism spreads through households and governments. Families may cut consumption because fuel and electricity cost more. Businesses face higher operating expenses and may reduce investment. Governments also pay more to shield consumers or maintain essential services. Those costs use fiscal resources, leaving less room for debt reduction, public investment, or emergency support.

The IMF identifies this pattern among countries outside the AI supply chain. The euro zone faces higher energy costs and weak consumer confidence, with growth estimated at just 1.1% this year. If prices stay high, weaker incomes and reduced fiscal room can reinforce slow growth and make future shocks harder to manage.

Fuel diversification, strategic reserves, and improving shipping through the Strait of Hormuz have helped prevent the war’s energy disruption from becoming even worse. Diversification reduces reliance on one source. Reserves provide temporary supplies when markets are disrupted. Reopening the major route allows more Gulf energy exports to reach buyers.

The IMF said Gulf crude exports averaged 88% of pre-conflict levels in September as traffic picked up. It also said countries tapped strategic reserves and diversified fuel sources, containing the energy-market turmoil. These measures helped economies keep operating and supported the resilience that surprised policymakers.

The protection is temporary, however. The IMF now expects the Strait to reopen in March next year and return to its pre-war state by October. Global oil reserves are being drawn down by about 2.7 million barrels daily. As stocks fall, markets may become more vulnerable to sharp price movements and renewed pressure on growth.

The AI boom supports growth, but its spending surge can also overheat parts of the economy. The IMF calls it a large, front-loaded demand shock because investment pours into chips, data centers, and power generation before broad productivity gains appear. Strong demand can add to inflationary pressure.

Higher inflation may require central banks to keep monetary policy restrictive for longer. That can raise borrowing costs and make investment, mortgages, and government financing more expensive. Meanwhile, heavy spending can create financial fragility if investors assume AI profits and productivity will quickly justify current valuations.

The risk is a sharp reversal. If expected AI productivity gains fail to materialize, companies may cut excessive investment and investors may reassess profitability. The IMF says that scenario could reduce U.S. equities by 20% and lower global growth by 1.1%. Energy constraints could intensify the downturn by weakening AI-led momentum.

In standard economic usage, GDP is the value of goods and services produced, so its growth rate shows whether activity is expanding or shrinking. Inflation is the pace at which prices rise. Public debt is the government’s accumulated borrowing. Fiscal space is the room a government has to spend or cut taxes without threatening financial stability.

These measures connect during a shock. A country with stronger GDP growth may better support jobs and incomes. High inflation reduces purchasing power and can require restrictive monetary policy. Heavy public debt increases financing pressure. Limited fiscal space makes it harder to subsidize energy, protect households, or invest in recovery when conditions deteriorate.

The IMF warns that global resilience is nearing its limits as public debt and energy risks mount. It urges governments to restore fiscal space and supply-chain security. It also stresses central-bank independence and sufficiently restrictive monetary policy so inflation returns to target in a timely way.