World Economic Outlook says geopolitical tensions and uneven AI gains are reshaping global growth as inflationary pressures return…..
The International Monetary Fund (IMF) has projected that global inflation will edge higher in 2026, warning that persistent geopolitical tensions and uneven technological gains could slow economic growth and prolong price pressures worldwide.
In its July 2026 World Economic Outlook (WEO) Update, the Washington-based financial institution forecast global headline inflation at 4.7 per cent in 2026, up from 4.1 per cent in 2025, signalling a pause in the disinflation trend that has been underway since early 2024.
Despite expectations of continued economic expansion, the IMF trimmed its medium-term outlook, projecting global growth at 3.0 per cent in 2026 and 3.4 per cent in 2027, compared with the average growth rate of 3.5 per cent recorded across 2024 and 2025.
According to the report, the global economy is currently being shaped by two powerful forces the ongoing conflict in the Middle East and the rapid acceleration of artificial intelligence which are producing sharply different outcomes across countries.
The Fund explained that nations benefiting from the technology boom are recording stronger economic activity, even where they rely heavily on imported energy. Likewise, energy-exporting countries outside the conflict zone are gaining from favourable commodity prices.
However, countries that import energy and have limited participation in the AI-driven technology value chain, particularly many low-income economies, are expected to experience weaker growth and greater economic pressure.
The IMF noted that the latest forecasts suggest the decline in global inflation seen since the beginning of 2024 has now stalled, with renewed increases in energy prices reversing earlier gains.
The report also warned that risks to the global economy remain heavily tilted to the downside.
Among the biggest concerns highlighted are the possibility of a further escalation of the Middle East conflict, continued volatility in commodity markets, supply chain disruptions and tighter global financial conditions.
It also cautioned that growing trade fragmentation could weaken global economic output while driving prices even higher. In addition, the Fund warned that an abrupt correction in expectations surrounding the high-tech sector could create fresh uncertainties for the global economy.
On the positive side, the IMF said faster stabilisation of energy markets, stronger investment in artificial intelligence and well-designed structural reforms could improve growth prospects over the medium term.
To navigate the uncertain outlook, the Fund urged governments and central banks to remain focused on restoring price stability through credible monetary policy, clear communication, central bank independence and strong financial sector oversight.
It also advised governments to rebuild fiscal buffers while ensuring that any fiscal support remains temporary and targeted at protecting vulnerable households.
The report further called for structural reforms aimed at strengthening energy security, improving countries’ readiness to harness artificial intelligence and rebalancing domestic economies, while emphasising the need for greater international cooperation to reduce the economic strain created by ongoing geopolitical tensions.
According to the IMF, global headline inflation has now risen for three consecutive months on a year-on-year basis, driven largely by surging energy prices. Although headline inflation accelerated sharply between February and April, the Fund noted that core inflation has remained relatively stable across most economies.
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