The global economy is absorbing two opposing shocks at once. War in the Middle East is pushing up energy and food costs, while a powerful investment cycle centred on artificial intelligence is supporting demand, trade and financial markets. The result is neither a clean recovery nor an immediate downturn, but a more uneven and vulnerable expansion.

The International Monetary Fund expects global output to grow 3.1% in 2026, slightly above its July forecast of 3%, before accelerating to 3.4% in 2027. Yet that pace remains below the 3.5% expansion recorded in 2025. Global inflation is projected to reach 4.7% this year and ease to 4.1% next year, with energy prices and AI-related demand contributing to the pressure. The IMF’s October outlook describes resilience that is increasingly uneven across countries.

Two shocks moving in opposite directions

The economic mechanism is unusually clear. Higher oil, gas and food prices act like a tax on households and companies, reducing purchasing power and raising production costs. Energy-importing economies are especially exposed, while governments face pressure to subsidise consumers or accept a renewed inflation problem.

At the same time, AI is generating a surge in spending on data centres, semiconductors, electricity infrastructure and software. That investment boosts construction, manufacturing and cross-border trade, particularly in economies positioned to supply advanced computing equipment. The IMF has characterised the contrast as a negative energy supply shock alongside a positive AI demand shock. Its press briefing said the two forces are pulling growth and prices in opposite directions.

This helps explain why headline growth has held up better than many forecasters expected. It also explains why the benefits are not widely shared. The IMF says countries benefiting from the AI investment boom or favourable terms of trade are performing relatively well, while lower-income and energy-importing economies face a much harder environment. Emerging and developing economies are projected to grow 3.7% in 2026, down from 4.5% in 2025, according to reporting on the forecast by ABC News.

Why the apparent strength may mislead

AI investment is real, but its macroeconomic support is concentrated. Large technology companies and their suppliers can sustain enormous capital expenditure, whereas households exposed to food and fuel inflation cannot easily compensate by increasing consumption. The expansion can therefore coexist with weak living standards and political pressure in countries that do not capture the technology boom.

There is also a financial risk. The IMF warns that markets may be vulnerable if expectations about AI become too optimistic. A correction in highly valued technology companies would not necessarily end the long-term development of AI, but it could reduce investment, weaken business confidence and expose lenders or investors with concentrated positions.

“The global economy remains resilient despite mounting challenges, but the outlook is becoming increasingly uneven across countries.” International Monetary Fund

Higher borrowing costs add another layer of risk. IMF Managing Director Kristalina Georgieva said yields in advanced economies had reached multi-decade highs, reflecting persistent inflation, stronger expected growth linked to AI and concerns about fiscal fundamentals. Governments that respond to expensive energy with broad fiscal support could protect demand in the short term, but they may also deepen debt pressures and complicate central-bank efforts to restrain prices. The IMF briefing transcript records those concerns.

What comes next

The immediate question is whether the Middle East conflict remains contained or causes a prolonged disruption to energy supplies. A persistent shock would test the assumption that stockpiles, public support and resilient trade can offset higher prices. Europe appears particularly exposed because of its energy-import dependence, while the United States has so far shown greater insulation, although its inflation rate rose to 3.7% in the year to September, according to BBC Business.

Central banks must then choose between supporting activity and preventing a second inflation wave. If energy prices remain elevated, rate cuts could be delayed or reversed; if policymakers tighten too aggressively, they risk weakening the investment that is currently sustaining growth. The policy challenge is sharper in poorer economies, where external financing is more expensive and energy subsidies consume scarce fiscal space.

The most plausible near-term outcome is continued growth with wider divergence: strong technology and energy exporters alongside weaker importers and indebted states. The longer-term outcome will depend on whether AI productivity spreads beyond a small group of firms and countries. If it does, the current investment boom could raise capacity and living standards. If returns disappoint, the same concentration that is cushioning the world economy could amplify its next slowdown.

Sources: IMF World Economic Outlook Annual Meetings 2026; IMF global output briefing; IMF policy briefing transcript; ABC News; BBC Business.