Economies exposed to the Middle East conflict face weaker activity, while countries benefiting from technology cycle see stronger growth, the IMF said.
The global economy will grow more slowly this year, the International Monetary Fund (IMF) said in a July update, with stronger technology investment providing some offset from the effects of the Middle East conflict.
Global growth is expected to reach 3 percent this year, the IMF said, down from 3.5 percent in both 2024 and 2025, before an expected rebound to 3.4 percent in 2027.
“The global outlook is being shaped by two powerful forces pulling in opposite directions: the lingering effects of the energy shock from the war in the Middle East, and a technology-driven investment boom,” Petya Koeva Brooks, deputy director of the IMF’s Research Department, said in a July 7 statement.
She said the IMF expects what she described as a “V-shaped recovery,” with weaker growth this year followed by stronger expansion in 2027 as AI-related investment partly offsets the economic drag from higher energy costs.
The global economy has held up better than the IMF expected, thanks to stable financial markets, increased use of renewable energy in global energy production, and measures that helped limit the rise in oil prices. The institution said the Middle East conflict remains the biggest risk to the global outlook.
Inflation Outlook
The IMF raised its global inflation forecast, saying higher energy and food prices have interrupted the steady decline in inflation that began more than two years ago.
Global headline inflation is projected to rise from 4.1 percent in 2025 to 4.7 percent in 2026, then ease to 3.9 percent in 2027. The revised forecast is higher than the IMF’s April projection and suggests that central banks may need to keep monetary policy tighter for longer in many countries.
“Put simply, the disinflation trend that has been in place since early 2024 has stalled,” Brooks said.
The IMF said core inflation remains broadly unchanged, indicating that higher headline inflation is being driven primarily by energy and food prices rather than broad-based demand pressures.
So far, it said, there is little evidence that higher inflation is becoming embedded in wages or longer-term inflation expectations.
