The global economy is entering a phase where resilience is no longer defined by the absence of shocks, but by the ability to absorb them and continue expanding. That is the central message emerging from the latest outlook by the International Monetary Fund, which sees global growth holding steady through 2026 even as trade tensions, geopolitical uncertainty, and policy fragmentation persist. The stabilising force, according to the Fund’s analysis, is a powerful and broad-based investment cycle centred on artificial intelligence, which is beginning to offset the drag from tariffs and disrupted trade flows.
Rather than a sharp rebound or a downturn, the IMF is pointing to a period of durable, moderate expansion. This reflects a global economy that has adjusted to years of overlapping crises—from the pandemic and inflation shock to supply-chain upheaval and trade confrontation—and is now finding new sources of momentum. At the core of that adjustment is the rapid deployment of AI-related capital, reshaping expectations for productivity, profitability, and long-term growth across advanced and emerging economies alike.
Trade headwinds lose their bite as economies adapt
One of the more striking elements of the IMF’s outlook is the diminished role of trade frictions as a binding constraint on growth. While tariffs and trade disputes remain a feature of the global landscape, their macroeconomic impact has softened as firms and governments adapt. Supply chains have been rerouted, sourcing strategies diversified, and trade flows redirected toward alternative markets.
The IMF’s projections reflect a world in which trade policy uncertainty no longer paralyses investment decisions to the extent it once did. Businesses have learned to operate with higher baseline tariffs, passing on some costs, absorbing others, and redesigning logistics networks to maintain margins. Meanwhile, negotiated trade deals and partial tariff rollbacks have reduced the peak intensity of earlier confrontations, allowing global commerce to regain a degree of predictability.
This adjustment does not imply a return to the pre-trade-war era of frictionless globalisation. Instead, it signals the emergence of a more fragmented but functional system, where trade volumes grow at a slower pace yet remain sufficient to support expansion. In this environment, the drag from tariffs becomes manageable rather than destabilising.
AI investment reshapes the growth equation
If trade adaptation explains why growth has not faltered, artificial intelligence explains why it is edging higher. The IMF’s outlook places unusual emphasis on the scale and breadth of AI-related investment now underway. Spending on data centres, advanced semiconductors, cloud infrastructure, and energy capacity to power digital systems is providing a significant demand boost, particularly in large advanced economies.
More importantly, this investment is shaping expectations about future productivity. Businesses are increasingly treating AI not as an experimental tool but as a core input capable of transforming operations, from manufacturing optimisation and logistics planning to financial analysis and customer engagement. These expectations are feeding into asset markets, corporate hiring strategies, and capital expenditure plans.
The IMF sees this dynamic as a key reason global growth in 2026 is projected to match the pace of 2025 rather than slow, despite lingering policy headwinds. The AI boom, in effect, is acting as a counterweight to structural drags, injecting optimism and spending into economies that might otherwise be constrained by cautious consumers and tighter fiscal conditions.
United States growth anchored by technology spending
Nowhere is the AI effect more pronounced than in the United States. The IMF’s projections point to solid growth driven in part by massive investment in AI infrastructure. The construction of data centres, the development of high-performance chips, and the expansion of power generation to support digital demand are creating spillovers across sectors, from construction and energy to software and professional services.
This investment cycle has helped cushion the U.S. economy from the after-effects of tariff disputes and tighter financial conditions. Even as some sectors face margin pressure, the technology-driven capital surge is sustaining employment and business confidence. The IMF’s outlook suggests that this momentum will persist into 2026, before gradually moderating as the initial wave of AI buildout matures.
However, the Fund also notes that such concentration carries risks. If productivity gains fail to materialise at the scale investors expect, elevated valuations could correct, dampening demand. The balance between realised efficiency improvements and speculative excess will be critical in determining whether AI remains a stabiliser or becomes a source of volatility.
Europe and the uneven transmission of AI gains
In Europe, the AI-driven uplift is more uneven but still evident. Countries with stronger technology ecosystems and higher levels of digital readiness are seeing clearer benefits, while others rely more heavily on fiscal support and structural reforms to sustain growth. Increased public spending in some major economies is helping to bridge the gap, providing a near-term boost while private investment catches up.
The IMF’s outlook reflects modest but improving growth across the euro area, supported by a combination of easing inflation, gradual monetary accommodation, and selective technology investment. AI adoption in services, manufacturing automation, and logistics is beginning to contribute to output, though at a slower pace than in the United States.
Crucially, the Fund’s analysis suggests that Europe’s growth trajectory in 2026 is less constrained by trade headwinds than by the speed of digital transformation. Where firms move decisively to integrate AI into processes, productivity gains are more visible; where adoption lags, growth remains subdued.
China and the limits of export-led adjustment
China occupies a distinct position in the IMF’s outlook. While trade adaptation and export diversion have helped cushion the impact of tariffs, the Fund continues to highlight the limits of relying on external demand. Growth is expected to moderate as the boost from redirected exports fades, underscoring the need for a more balanced growth model.
AI investment does play a role in China’s outlook, particularly in manufacturing efficiency and digital services. However, the IMF’s analysis suggests that without stronger domestic demand, the upside from technology alone may be insufficient to sustain higher growth rates. The interaction between innovation, consumption, and policy reform will therefore shape China’s medium-term trajectory.
A key assumption underpinning the IMF’s steady growth forecast is the continued easing of global inflation. As price pressures recede, central banks gain room to adopt more accommodative stances, reducing the risk that tight monetary policy chokes off expansion. This environment is particularly supportive of investment-heavy sectors such as technology, which are sensitive to financing conditions.
The IMF views this combination—falling inflation, adaptable trade structures, and strong AI investment—as mutually reinforcing. Lower inflation stabilises expectations, encouraging long-term planning, while technology spending boosts supply capacity, helping to contain future price pressures.
Risks beneath the surface
Despite the constructive outlook, the IMF emphasises that risks remain tilted to the downside. Geopolitical tensions, renewed trade disputes, or abrupt policy shifts could still disrupt markets. AI itself represents a double-edged sword: a source of upside if productivity gains are realised, but a potential trigger for financial instability if expectations prove overextended.
Legal and political uncertainty around trade policy also lingers, with the possibility of abrupt changes injecting volatility into global planning. The IMF’s message, however, is that the global economy is better equipped to absorb such shocks than it was earlier in the decade.
The IMF’s projection of steady global growth in 2026 reflects a world economy that has evolved under pressure. Rather than reverting to old patterns, it is forging a new equilibrium shaped by adaptation to trade frictions and acceleration in technological investment. Artificial intelligence stands at the centre of this transition, not as a guaranteed cure-all, but as a powerful force reshaping expectations and behaviour.
In this context, growth is no longer driven by a single engine or region. It emerges from a complex interplay between policy restraint, corporate adaptation, and innovation-led optimism. The IMF’s outlook suggests that, for now, that balance is holding—allowing the global economy to move forward even as headwinds persist.
(Source:www.reuters.com)
Rather than a sharp rebound or a downturn, the IMF is pointing to a period of durable, moderate expansion. This reflects a global economy that has adjusted to years of overlapping crises—from the pandemic and inflation shock to supply-chain upheaval and trade confrontation—and is now finding new sources of momentum. At the core of that adjustment is the rapid deployment of AI-related capital, reshaping expectations for productivity, profitability, and long-term growth across advanced and emerging economies alike.
Trade headwinds lose their bite as economies adapt
One of the more striking elements of the IMF’s outlook is the diminished role of trade frictions as a binding constraint on growth. While tariffs and trade disputes remain a feature of the global landscape, their macroeconomic impact has softened as firms and governments adapt. Supply chains have been rerouted, sourcing strategies diversified, and trade flows redirected toward alternative markets.
The IMF’s projections reflect a world in which trade policy uncertainty no longer paralyses investment decisions to the extent it once did. Businesses have learned to operate with higher baseline tariffs, passing on some costs, absorbing others, and redesigning logistics networks to maintain margins. Meanwhile, negotiated trade deals and partial tariff rollbacks have reduced the peak intensity of earlier confrontations, allowing global commerce to regain a degree of predictability.
This adjustment does not imply a return to the pre-trade-war era of frictionless globalisation. Instead, it signals the emergence of a more fragmented but functional system, where trade volumes grow at a slower pace yet remain sufficient to support expansion. In this environment, the drag from tariffs becomes manageable rather than destabilising.
AI investment reshapes the growth equation
If trade adaptation explains why growth has not faltered, artificial intelligence explains why it is edging higher. The IMF’s outlook places unusual emphasis on the scale and breadth of AI-related investment now underway. Spending on data centres, advanced semiconductors, cloud infrastructure, and energy capacity to power digital systems is providing a significant demand boost, particularly in large advanced economies.
More importantly, this investment is shaping expectations about future productivity. Businesses are increasingly treating AI not as an experimental tool but as a core input capable of transforming operations, from manufacturing optimisation and logistics planning to financial analysis and customer engagement. These expectations are feeding into asset markets, corporate hiring strategies, and capital expenditure plans.
The IMF sees this dynamic as a key reason global growth in 2026 is projected to match the pace of 2025 rather than slow, despite lingering policy headwinds. The AI boom, in effect, is acting as a counterweight to structural drags, injecting optimism and spending into economies that might otherwise be constrained by cautious consumers and tighter fiscal conditions.
United States growth anchored by technology spending
Nowhere is the AI effect more pronounced than in the United States. The IMF’s projections point to solid growth driven in part by massive investment in AI infrastructure. The construction of data centres, the development of high-performance chips, and the expansion of power generation to support digital demand are creating spillovers across sectors, from construction and energy to software and professional services.
This investment cycle has helped cushion the U.S. economy from the after-effects of tariff disputes and tighter financial conditions. Even as some sectors face margin pressure, the technology-driven capital surge is sustaining employment and business confidence. The IMF’s outlook suggests that this momentum will persist into 2026, before gradually moderating as the initial wave of AI buildout matures.
However, the Fund also notes that such concentration carries risks. If productivity gains fail to materialise at the scale investors expect, elevated valuations could correct, dampening demand. The balance between realised efficiency improvements and speculative excess will be critical in determining whether AI remains a stabiliser or becomes a source of volatility.
Europe and the uneven transmission of AI gains
In Europe, the AI-driven uplift is more uneven but still evident. Countries with stronger technology ecosystems and higher levels of digital readiness are seeing clearer benefits, while others rely more heavily on fiscal support and structural reforms to sustain growth. Increased public spending in some major economies is helping to bridge the gap, providing a near-term boost while private investment catches up.
The IMF’s outlook reflects modest but improving growth across the euro area, supported by a combination of easing inflation, gradual monetary accommodation, and selective technology investment. AI adoption in services, manufacturing automation, and logistics is beginning to contribute to output, though at a slower pace than in the United States.
Crucially, the Fund’s analysis suggests that Europe’s growth trajectory in 2026 is less constrained by trade headwinds than by the speed of digital transformation. Where firms move decisively to integrate AI into processes, productivity gains are more visible; where adoption lags, growth remains subdued.
China and the limits of export-led adjustment
China occupies a distinct position in the IMF’s outlook. While trade adaptation and export diversion have helped cushion the impact of tariffs, the Fund continues to highlight the limits of relying on external demand. Growth is expected to moderate as the boost from redirected exports fades, underscoring the need for a more balanced growth model.
AI investment does play a role in China’s outlook, particularly in manufacturing efficiency and digital services. However, the IMF’s analysis suggests that without stronger domestic demand, the upside from technology alone may be insufficient to sustain higher growth rates. The interaction between innovation, consumption, and policy reform will therefore shape China’s medium-term trajectory.
A key assumption underpinning the IMF’s steady growth forecast is the continued easing of global inflation. As price pressures recede, central banks gain room to adopt more accommodative stances, reducing the risk that tight monetary policy chokes off expansion. This environment is particularly supportive of investment-heavy sectors such as technology, which are sensitive to financing conditions.
The IMF views this combination—falling inflation, adaptable trade structures, and strong AI investment—as mutually reinforcing. Lower inflation stabilises expectations, encouraging long-term planning, while technology spending boosts supply capacity, helping to contain future price pressures.
Risks beneath the surface
Despite the constructive outlook, the IMF emphasises that risks remain tilted to the downside. Geopolitical tensions, renewed trade disputes, or abrupt policy shifts could still disrupt markets. AI itself represents a double-edged sword: a source of upside if productivity gains are realised, but a potential trigger for financial instability if expectations prove overextended.
Legal and political uncertainty around trade policy also lingers, with the possibility of abrupt changes injecting volatility into global planning. The IMF’s message, however, is that the global economy is better equipped to absorb such shocks than it was earlier in the decade.
The IMF’s projection of steady global growth in 2026 reflects a world economy that has evolved under pressure. Rather than reverting to old patterns, it is forging a new equilibrium shaped by adaptation to trade frictions and acceleration in technological investment. Artificial intelligence stands at the centre of this transition, not as a guaranteed cure-all, but as a powerful force reshaping expectations and behaviour.
In this context, growth is no longer driven by a single engine or region. It emerges from a complex interplay between policy restraint, corporate adaptation, and innovation-led optimism. The IMF’s outlook suggests that, for now, that balance is holding—allowing the global economy to move forward even as headwinds persist.
(Source:www.reuters.com)