The global economy has entered a precarious phase in which war, energy prices and artificial intelligence are pulling growth in opposite directions. The immediate shock is the conflict in the Middle East, which has raised fears of disrupted energy supplies and fertiliser markets. The counterweight is an investment cycle built around AI, whose demand for computing infrastructure is helping sustain activity in North America and Asia.
The International Monetary Fund now projects global growth of 3 percent in 2026 and 3.4 percent in 2027, below the roughly 3.5 percent average recorded in 2024 and 2025. It also expects headline inflation to rise from 4.1 percent in 2025 to 4.7 percent this year before easing to 3.9 percent in 2027. IMF July outlook
Why energy is the central transmission channel
Conflict affects the economy most quickly through energy. Higher oil and gas prices raise transport, electricity and production costs, while expensive fertiliser can feed into food prices. The OECD estimates that global growth will reach only 2.9 percent in 2026 and 3 percent in 2027, citing higher energy and fertiliser prices and elevated uncertainty linked to the conflict. OECD September outlook
The danger is not limited to the initial price increase. If households and businesses begin to expect persistent inflation, wage demands and price-setting can reinforce the shock. Central banks may then face pressure to keep interest rates higher, weakening housing, investment and government finances at the same time.
The IMF’s scenario analysis illustrates the range of outcomes. Its reference case assumes a short conflict and a 19 percent rise in energy prices in 2026, with global growth slowing to 3.1 percent. A more severe disruption could push growth to 2 percent and inflation above 6 percent. IMF April briefing
Why the slowdown has not become a collapse
Technology investment is cushioning the damage. The IMF says accelerated demand for AI and its adoption are supporting the global technology cycle, partly offsetting the effects of the war. Earlier IMF projections likewise identified technology-related investment, especially in North America and Asia, as a major support for growth despite shifting trade policy. IMF January outlook
That resilience, however, is uneven. AI spending is concentrated among large firms, specialised manufacturers and economies with access to advanced chips, capital and electricity. It can boost productivity and create new demand, but it may also widen the gap between sectors and countries that own the infrastructure and those that merely consume it.
There is also a valuation risk. If expected productivity gains fail to match the scale of current investment, markets could reprice technology companies and reduce business spending. The IMF has explicitly warned that a reassessment of AI-driven productivity could weaken growth and destabilise financial markets, alongside prolonged conflict and renewed trade tensions. IMF April World Economic Outlook
What governments and central banks face next
Policymakers must balance two conflicting priorities: containing inflation without turning an energy shock into a broad recession. Rate cuts may support demand but risk prolonging price pressures; keeping rates high may stabilise inflation expectations while increasing debt-servicing costs and exposing weaker borrowers.
Governments also face a distributional question. Energy-intensive industries and lower-income households are more vulnerable to price increases, but broad subsidies can be expensive and may encourage consumption. Targeted assistance is fiscally safer, although it is harder to design and administer quickly.
The next decisive variable is the conflict’s duration and geographical spread. A contained episode would leave the current forecast broadly plausible. Wider disruption to energy routes, infrastructure or trade would test the assumption that technology investment can offset the shock. The outlook therefore depends less on a single growth number than on whether the world can prevent a temporary energy crisis from becoming a lasting inflation and confidence crisis.