AI investment supports global growth as war and debt risks mount: IMF

The global economy is expected to grow by 3.1% in 2026, supported by strong investment in artificial intelligence (AI), but the prolonged Middle East conflict, rising energy prices and mounting public debt are threatening the outlook, the International Monetary Fund (IMF) noted on Tuesday.
In its latest World Economic Outlook, the IMF raised its global growth forecast slightly from 3.0% projected in July, while keeping its 2027 forecast unchanged at 3.4%. However, the projected growth for 2026 remains below the 3.5% expansion recorded in 2025.The improved outlook is largely driven by investment in AI infrastructure, benefiting advanced economies developing AI platforms and hardware suppliers such as South Korea, Malaysia, Mexico and Thailand. However, the IMF cautioned that the gains remain concentrated, with just 32 countries now accounting for 95% of global growth."The global economy has been resilient, but that resilience is reaching its limits, so we need to move from just coping to rebuilding," IMF chief economist Silvana Tenseyro said, highlighting the need to restore fiscal space and strengthen supply-side resilience.
Middle East Conflict Threatens Growth
The prolonged war has pushed oil prices above $100 per barrel, increasing inflationary pressures and threatening economic activity. The IMF warned that a further escalation, rising bond yields and extreme weather events could weaken global growth.Saudi Arabia's economy is projected to contract by 3.3% in 2026, while Iran, Iraq, Kuwait, Qatar and the UAE are also expected to record economic contractions.The IMF said measures such as drawing on reserves, finding alternative energy suppliers and reducing oil consumption have helped cushion the shock. However, their effectiveness is fading as the conflict continues.
India is projected to remain the world's fastest-growing major economy, with growth of 7.0% in both 2026 and 2027. Robust domestic demand, services activity and AI investment are expected to support expansion.The IMF raised its 2026 euro zone growth forecast to 1.1% from 0.9% in July, while Britain's forecast increased to 1.3%. The US economy is projected to grow by 2.3% in both 2026 and 2027.China's growth is forecast at 4.5% in 2026 and 4.0% in 2027, reflecting weaker domestic demand amid higher oil prices.
AI Boom and Rising Debt Pose Risks
The IMF warned that the AI investment boom could become a source of financial instability if expected productivity gains fail to materialise. A sharp decline in AI investment could trigger falling asset prices, tighter financial conditions and weaker consumption, particularly in the United States.Global headline inflation is projected at 4.7% in 2026 before easing to 4.1% in 2027. However, if oil prices rise to $130 per barrel under an adverse war scenario, inflation could climb to 5.2% in 2027.Elevated public debt and rising borrowing costs pose additional risks, particularly for advanced economies. The IMF urged governments to rebuild fiscal buffers and establish credible plans to bring debt to sustainable levels.The fund's assessment highlights a delicate global outlook in which AI investment is supporting growth, but geopolitical tensions, energy shocks and financial vulnerabilities could undermine economic resilience.

(Business Correspondent)