IMF sees steady global growth in 2026 as AI boom offsets trade headwinds

THE International Monetary Fund (IMF) again edged its 2026 global growth forecast higher on Monday (Jan 19) as businesses and economies adapt to US tariffs that have eased in recent months and a continued AI investment boom that has fuelled asset wealth and expectations of productivity gains.

The IMF in its World Economic Outlook update forecast global GDP growth at 3.3 per cent in 2026, up 0.2 percentage point from its last estimate in October. That’s even with 3.3 per cent growth in 2025, which will also beat the October estimate by 0.1 percentage point, it said.

The global crisis lender forecast 2027 growth at 3.2 per cent, unchanged from the previous forecast. It has revised global growth rates higher since last July in response to trade deals that have reduced US President Donald Trump’s tariff rates that peaked in April 2025.

“We find that global growth remains quite resilient,” IMF chief economist Pierre-Olivier Gourinchas told reporters, adding that the Fund’s 2025 and 2026 growth forecasts now exceed predictions made in October 2024, before Trump was elected to a second term.

“So, in a sense, the global economy is shaking off the trade and tariff disruptions of 2025 and is coming out ahead of what we were expecting before it all started,” Gourinchas said.

He said businesses have been able to adapt to higher US tariff rates by rerouting supply chains, while trade agreements have lowered some duties, and China has shifted exports to non-US markets. The latest IMF forecasts assume an effective US tariff rate of 18.5 per cent, down from about 25 per cent in the Fund’s April 2025 forecast.

The IMF estimated US growth for 2026 at 2.4 per cent, up 0.3 percentage point from October, due in part to a big push from massive investment in artificial intelligence infrastructure including data centres, powerful AI chips and power. The IMF edged its 2027 growth forecast a tenth of a point lower to 2 per cent.

The IMF also said technology investment was boosting activity in Spain, which saw a 0.3 percentage point upgrade to its 2026 GDP forecast to 2.3 per cent, and in Britain, where the IMF kept its forecast unchanged at 1.3 per cent for 2026.

Gourinchas said the AI boom poses risks for heightened inflation if it continues at its breakneck pace. But he added that if expectations of AI-driven productivity gains and profits are not realised, this could spark a correction in high market valuations that could crimp demand.

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The IMF report lists AI as among risks that are tilted to the downside, along with disruptions to supply chains and markets from geopolitical tensions as well as new flare-ups in trade tensions.

A Supreme Court decision against Trump’s broad tariffs under an emergency sanctions law, expected in coming days or weeks, “would inject another dose of trade policy uncertainty into the global economy” if Trump resurrects new tariffs under other trade laws, Gourinchas said.

But the IMF said that AI represents significant upside for the global economy if the investment surge leads to rapid adoption and productivity gains are realised and boost business dynamism and innovation.

Among forecasts for other major economies, the IMF said China’s 2026 growth would reach 4.5 per cent, down from a stronger-than-expected 5 per cent performance in 2025, but 0.3 percentage point higher than October estimates. The upgrade reflects a 10-percentage-point reduction in US tariff rates on Chinese goods for a year, as well as continued diversion of exports to other markets such as South-east Asia and Europe.

Gourinchas said that China risks running into more protectionist trade policies unless it develops a more balanced growth model that relies less on exports and more on internal demand.

The IMF forecast eurozone growth at 1.3 per cent for 2026, up 0.1 percentage point from the October estimate, driven by increased public spending in Germany and stronger performances in Spain and Ireland. The Fund kept its 2027 eurozone growth forecast unchanged at 1.4 per cent, noting that planned European increases in defence spending would materialise only in later years.

Japan also saw a slight upgrade to 2026 growth due to its new government’s fiscal stimulus package, but Brazil was a notable outlier to the improvement trend, with a 0.3 percentage point reduction in its 2026 growth rate to 1.6 per cent since October. IMF officials attributed the downgrade largely to tighter monetary policy needed to fight a flare-up in inflation last year.

The IMF said that globally, inflation was forecast to continue to decline, from 4.1 per cent in 2025 to 3.8 per cent in 2026 and 3.4 per cent in 2027. Gourinchas said this leaves room for more accommodative monetary policy that will help underpin growth. REUTERS