The global economy is expected to grow faster than previously forecast, supported by strong investment in artificial intelligence, resilient private-sector activity, and easing financial conditions, according to the International Monetary Fund (IMF).
In its January 2026 update to the World Economic Outlook, the IMF raised its global growth forecast to 3.3% in 2026 and 3.2% in 2027, modestly higher than projections published in October 2025. The fund said the world economy has held up better than expected despite trade tensions, geopolitical uncertainty, and rising debt levels.
A central driver of the upgrade is a sharp increase in technology and AI-related investment, particularly in the United States. The IMF noted that global spending on information technology has reached its highest level in more than two decades, providing a powerful boost to business activity, corporate earnings, and equity markets.
The surge has also supported Asia’s technology-exporting economies and improved access to capital globally, reinforcing a positive feedback loop between investment, profits, and financial conditions.
“The resilience exhibited so far is driven largely by a few sectors,” IMF Chief Economist Pierre-Olivier Gourinchas said, highlighting AI and technology as key tailwinds offsetting trade and policy disruptions.
Accommodative financial conditions and stronger earnings have helped sustain the global expansion, the IMF said. However, it warned that much of the investment boom is increasingly being financed through debt, raising risks if expectations around AI-driven productivity fail to materialise.
Higher leverage, frequent hardware upgrades, and changing profitability assumptions could leave companies exposed if financial conditions tighten or investor sentiment shifts, potentially creating spillover risks across global markets.
The IMF compared the current AI investment cycle to the late-1990s dot-com era, noting that while investment levels are similar, today’s expansion has been more gradual and supported by stronger earnings that are reducing, but not eliminating, the risk of overvaluation.
Despite signs that the global economy has partially absorbed the trade disruptions of 2025, trade policy uncertainty remains elevated.
After returning to the White House, President Donald Trump imposed sweeping tariffs that strained supply chains and unsettled markets, though tensions eased later in the year following deals with several partners and a temporary truce with China.
More recently, renewed tariff threats against European countries have reintroduced uncertainty. The IMF warned that further escalation in trade disputes or geopolitical tensions could quickly undermine confidence and growth.
The fund also flagged an upcoming US Supreme Court ruling on the legality of the administration’s use of emergency powers to impose tariffs, noting that a decision could inject another wave of trade policy uncertainty into the global economy.
On the upside, the IMF said AI adoption could begin delivering measurable productivity gains, potentially adding around 0.3 percentage points to global growth in the near term. This effect has been most visible in the United States, where AI-related investment contributed significantly to GDP growth in 2025.
On the downside, a sharp reassessment of AI profitability or a correction in technology stocks could weigh heavily on growth. Technology firms now make up a larger share of global equity indices, meaning any major repricing could spill over into consumer confidence, spending, and broader financial conditions.
“If expectations about AI gains turn out to be unrealistic, a market correction could have real macroeconomic consequences,” Gourinchas warned.
So while AI is delivering a powerful boost to global markets and growth today, the IMF cautioned that heavy concentration of investment in a single sector could create new vulnerabilities over time.
Policymakers and investors, the fund said, now face the challenge of translating AI-driven momentum into sustainable, broad-based growth, while guarding against financial excesses, rising debt, and renewed trade shocks.
The IMF also took note of growing divergence across regions. The United States is expected to grow 2.4% this year, revised higher from October, while growth in the euro area and Japan remains more subdued. China and India continue to outperform many other emerging markets, contributing significantly to the upward revision in global growth.
For 2026, global inflation is expected to ease to 3.8%, down from an estimated 4.1% in 2025, giving central banks more room to manoeuvre, provided inflation risks remain contained.
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