13/10/26
IMF upgrades outlook modestly despite war risks
Washington, 12 October (Argus) — The global economy is holding up better than
the IMF expected despite an oil supply shock triggered by the war in the Middle
East, but that growth outlook could erode if the conflicts in Iran or Ukraine
drag on or further escalate. The IMF's latest World Economic Outlook forecasts
the global economy will grow by 3.1pc in 2026, up by 0.1 percentage point from
an update in July, with some of those gains driven by an economic rebound in
Europe and robust trade flows from parts of Asia. Global growth is on track to
increase to 3.4pc in 2027, unchanged from the last update, IMF said. Rerouting
energy commodity flows from the Mideast Gulf, releasing oil from strategic
reserves and increasing oil production elsewhere has helped blunt disruptions
from the closure of the strait of Hormuz. Overall, the disruptions in the strait
have prompted the IMF to shave only 0.3 percentage points off anticipated global
growth for 2026. If not for the cushion provided by the flexibility of oil
supply and a 20pc reduction in global oil intensity over the last decade, the
IMF said the war in the Middle East could have cut global growth this year by
three times that. Higher oil prices contributed to China's economic growth
slowing to 4.5pc this year, down from 5pc in 2025. The US economy is expected to
grow by 2.3pc, bolstered by technology-related investments in data centers.
Saudi Aribia's economy is projected to shrink by 3.3pc this year because of
disruptions from the Middle East war, the IMF said, whereas the comparatively
less diversified economies of Bahran, Iraq, Kuwait and Qatar are on track for
"double digit" economic contractions. But some of the buffers that have
mitigated the economic damage from war are running out, and energy markets are
"highly sensitive" to any additional disruptions, such as an escalation in
attacks on refineries or infrastructure. "Without shoring up supply capacity and
replenishing policy buffers, the global economy could soon test the limits of
resilience," IMF's chief economist Silvana Tenreyro wrote in a blog post.
"Dwindling energy inventories could allow geopolitical shocks to transit even
more forcefully to energy prices." Among the energy-related risks are
below-average natural gas inventories in Europe that leave the continent
vulnerable to extreme winter weather. Continued global depletion of energy
supplies are also pushing inventories closer to "stress levels that could lead
to nonlinear price adjustments", the IMF said. A prolonged stalemate or
escalation in the wars in the Middle East or Ukraine could exacerbate pressure
from inflation, which is on track to average 4.7pc this year, up from 4.1pc in
2025, the IMF said. The outlook anticipates global inflation in 2027 will
decline to 4.1pc, although that is still 0.2 percentage points higher than the
forecast from July. Global investments into artificial intelligence (AI) have
been an "offsetting force" to geopolitical headwinds, the IMF said, although
that growth has been concentrated in a handful of countries that produce
advanced microchips, such as Taiwan and South Korea, or that are building out
data centers, such as China and the US. That investment boom is contributing to
near-term inflationary pressures, the IMF said, and any future re-reassessment
of AI-related profitability could sharply curtail investment and tighten
financial conditions. Global growth in 2027 could end up being "materially
lower", and inflation "significantly higher", under a risk scenario the IMF
developed under which higher commodity prices and concerns over government debt
causes a reassessment of borrowing risks, Tenreyro said. Keeping publicly held
debt on a "sustainable path" could prevent that scenario, she said. By Chris
Knight IMF GDP growth estimates and forecasts Oct 26 WEO % ±July 26 WEO Update*
Region 2025 2026 2027 2026 2027 World 3.5 3.1 3.4 0.1 0.0 US 2.3 2.3 2.3 0.0 0.1
Eurozone 1.2 1.1 1.2 0.2 0.0 UK 1.2 1.3 1.2 0.3 -0.1 China 5.0 4.5 4.0 -0.1 0.1
India 7.8 7.0 7.0 0.6 0.3 Japan 1.2 0.7 0.7 0.1 0.0 Russia 1.0 0.9 0.9 -0.2 -0.2
LatAm-Caribbs 2.5 2.3 2.3 -0.1 -0.2 Middle East-central Asia† 3.7 -0.3 6.3 -1.0
-0.2 *percentage point changes †Middle East, north Africa, Afghanistan,
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