In her inaugural IMF World Economic Outlook briefing in Bangkok, Silvana Tenreyro, the new Research Department director at the International Monetary Fund (IMF), offered a sobering view of the global economy. She noted that despite enduring geopolitical, climate, and fiscal challenges, the world economy has shown resilience, but emphasized the need for rebuilding to sustain this strength.
“The economy has been resilient, but that resilience is reaching its limits,” Tenreyro said. “The task ahead is to move from coping to rebuilding, restoring fiscal space and supply-side resilience, and in that way strengthening countries’ ability to grow sustainably.”
Tenreyro opened with data to underline the fact that global economic activity continues to expand, but at a slower pace than last year. “Global activity is projected to grow at 3.1% this year, 40 basis points lower than last year, and it’s forecast to rise by 3.4% in 2027.”
AI and Middle East War Shape Outlook
Tenreyro said this performance reflects “the net result of two key forces that are shaping the outlook.” The first is the surge in energy and commodity prices triggered by conflict. The increase in the prices of energy and other commodities triggered by the war are “akin to a negative global supply shock, driving up prices and hampering activity.”
The second is the rapid expansion of artificial intelligence. “The tech boom, mostly driven by AI, acts as a positive demand shock, driving up both prices and activity, particularly trade and investment.” These opposing forces are pushing inflation higher. Global headline inflation is projected to rise to 4.7% this year and to 4.1% in 2027 while core inflation expectations are 3.9% and 3.7% for 2026 and 2027 respectively.
Higher inflation has combined with already raised debt levels. This, she explained, is especially acute for highly indebted countries, where refinancing pressures are intensifying.
Tenreyro warned that “higher borrowing costs and interest rate payments could crowd out” essential spending. The IMF’s latest output projections show that world output is expected to grow 3.5% in 2025, slow to 3.1% in 2026, and recover slightly to 3.4% in 2027.
Global Economic Projections
Output in advanced economies remains subdued, hovering around 2%, with the United States projected to maintain 2.3% output growth from 2025-27. The Euro area lingers at 1.2% while Japan is expected to slump to 0.7% from next year. The United Kingdom remains similarly restrained at 1.2-1.3% until 2027.
Emerging markets, however, tell a different story. Emerging and developing Asia output is projected to grow 5.6% in 2025, 5.1% in 2026 and 4.9% in 2027. India stands out with 7.8% in 2025 and 7% forecast in both 2026 and 2027. Sub-Saharan Africa output is at 4.5% until 2027.
“The outlook is highly uneven across countries reflecting differences in exposure to commodity prices and AI-related activity as well as borrowing costs.” Going forward, Tenreyro says energy exporters and economies integrated into the AI cycle are expected to perform better. “Energy exporters not in the conflict region and countries closely integrated in the AI cycle are expected to fare better.”
Meanwhile, “energy importers and those with limited participation in the AI tech boom face weaker growth prospects” with many low-income countries and fragile states identified as falling into the latter group. Tenreyro said global resilience faces three major challenges, including renewed tensions in the Middle East, technological concentration, and fiscal risks.
With renewed tensions in the Middle East, prices of crude oil, gas, and refined oil products such as diesel and jet fuel have risen sharply. Tenreyro warned that “a more prolonged disruption of production and transport in the Middle East could lead to even higher prices of energy and other commodities.”
While markets have adjusted through rerouting, inventory drawdowns and efficiency gains, Tenreyro said “some of these margins, in particular, inventories and energy efficiency gains are reaching their limits.” Without these buffers, she noted, “this year’s global growth would have been 60 basis points lower at 2.5% instead of 3.1%.”
The IMF’s risk scenario shows how quickly conditions could deteriorate, with higher commodity prices and concerns with the fiscal outlook leading to a reassessment of public borrowing risks. This causes an increase in both the term premium and inflation expectations, resulting in lower growth and higher inflation.
In this scenario, growth in advanced and emerging economies would be 50 to 60 basis points lower by 2027 relative to the baseline forecast, with inflation materially higher.
AI Opportunities and Risks
Between 2023 and 2024, global trade grew 8.3% cumulatively, with global trade in goods related to AI growing by 29%, highlighting AI’s significant role in shaping global growth.
Without AI, overall trade would have been only 4.6% instead of 8.3%, demonstrating the substantial impact of AI on global trade, Tenreyro noted.
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