The International Monetary Fund’s October 2026 World Economic Outlook delivers a message that is easy to miss amid the headline numbers. Global growth is forecast at 3.1 per cent this year, down from 3.5 per cent in 2025, before edging up to 3.4 per cent in 2027. At first glance, this looks like a mild slowdown. The more important story is that the average hides a widening gap between winners and losers.
The Fund describes the situation not as a simple slowing or acceleration, but as a reallocation of growth across countries. The two forces doing the allocating are exposure to the war-induced energy supply shock and the strength of demand tied to artificial intelligence. Countries that sit on the right side of one or both are doing relatively well. Those on the wrong side of both, such as energy importers with little role in the technology supply chain, face a much harder year.
Consider the energy side first. The disruption around the Strait of Hormuz has pushed up fuel and food prices worldwide. The IMF expects global headline inflation to rise to 4.7 per cent in 2026 from 4.1 per cent in 2025 before easing to 4.1 per cent in 2027. It also projects non-fuel commodity prices to climb more than 17 per cent this year. For households, that arrives as higher costs for transport, heating and groceries. For governments, it means pressure to subsidise fuel or cushion the poorest, often at the expense of already stretched budgets.
Commodity exporters and countries with strong terms of trade have partly offset the pain. Producers of energy and some raw materials are earning more. The United States, as a major producer, is relatively insulated; the IMF expects its economy to grow about 2.3 per cent in both 2026 and 2027, supported by resilient consumer spending, fiscal policy and continued investment in AI and related technology.
That brings us to the second force. The AI investment boom is building data centres, chips, networks and power capacity at a pace that is visible in national accounts. Several Southeast Asian economies are benefiting from data centre activity and the upturn in the global technology cycle. In some cases, emergency fiscal measures are adding to growth. The IMF expects the technology cycle to stabilise rather than surge further, with productivity growth generally projected to stay on its current path. In other words, the boom supports demand now, but forecasters are not yet banking on a dramatic productivity payoff.
Low-income countries are in the most difficult position. They tend to import fuel and food, carry heavy debt service, depend on remittances and tourism that can wobble in a crisis, and have little fiscal space to respond. Deniz Igan of the IMF’s research department noted that growth is becoming increasingly uneven and that many energy-importing and low-income nations face much more challenging conditions than those benefiting from AI investment or favourable trade terms.
The Fund’s most worrying theme is the erosion of buffers. After a series of shocks, including the pandemic, earlier energy spikes, trade disputes and now a major war, governments and central banks have less room to respond to the next one. Public debt is high, borrowing costs remain elevated compared with the previous decade, and inflation is above target in many places, which limits how far central banks can cut rates without risking a new price surge. The IMF expects fiscal policy in emerging and developing economies to tighten gradually, which would weigh on growth.
Risks are skewed to the downside. A prolonged conflict or fresh disruptions to energy supply would lift prices again and slow activity further. Renewed trade tensions could damage investment and supply chains. Tighter global financial conditions could expose vulnerable borrowers. A sharp correction in technology valuations, were investors to doubt the payoff from AI spending, would also ripple through markets and through economies that have leaned on that spending for growth.
The Fund’s policy advice is notable for its balance. Governments should address immediate shocks without undermining medium-term stability, which in practice means targeted support for vulnerable households rather than broad, costly subsidies. Over the longer term, it recommends strengthening energy security, improving readiness to adopt AI, and preserving open trade and international cooperation. That last point stands out in a period when many countries are turning inward.
For readers trying to make sense of this, a useful habit is to look beyond the world average. A 3.1 per cent global figure can coexist with a booming data centre hub and a fuel-importing country in near-recession. Businesses should ask which of their markets sit on which side of the divide. Workers and savers should expect more volatile prices for essentials and think about resilience, not just returns.
The forecast for 2027 is cautiously better, but it rests on assumptions that the strait reopens and that conflict does not worsen. In an economy being sorted by energy exposure and technology demand, geopolitics and AI investment are now as important as interest rates in determining who prospers.