The International Monetary Fund’s World Economic Outlook update, which was released on Wednesday, projected global growth at 3 percent this year, down from an average of 3.5 percent between 2024 and 2025, with a few economies, including China, emerging as bright spots.
The negative impact of the United States and Israel’s war with Iran on global supply chains and the rapid and positive deployment of artificial intelligence tools worldwide are the two biggest factors shaping global economic activity across countries, the IMF report said.
It projected China’s growth at 4.6 percent for 2026, which is 0.2 percentage points higher than its April forecast. That growth is “driven by front-loaded public infrastructure investment and a surge in high-tech manufacturing and in exports, even as domestic consumption remained soft”.
The IMF expected global growth to be around 3.4 percent in 2027.
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The report noted that it was too early to judge the full impact of the war on supply chains and manufacturing purchasing managers’ indexes, as it pointed to softer momentum ahead.
According to the report, the effects of the war in the Middle East were being partly offset by accelerated demand for global technology led by advances in AI and its adoption.
“The possibility of renewed conflict in the Middle East looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions. Trade fragmentation could accelerate, possibly hurting output and increasing prices,” the economic outlook said.
A “re-escalation of geopolitical tensions” due to developments in the Middle East posed an imminent risk to the baseline forecast, the report said, adding that this would hurt growth and compound inflationary pressures.
Global headline inflation is expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026 before declining to 3.9 percent in 2027, the report said.
While the risks to the global economy are more balanced this month compared with April, they are still “tilted downward”, according to the report, which is titled “Global Economy in Crosscurrents of War and Technology”.
In the first quarter of 2026, global growth turned out to be stronger than expected. It slowed from 3.8 percent in the fourth quarter of 2025 to 3 percent in the first quarter of 2026, instead of the 2.7 percent forecast in the April edition of the economic outlook report.
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This was due to the steady increase in the share of renewable energy in global energy production and the fact that many economies were less energy-intensive than they had been a few years ago.
Looking forward to the near future, the economic outlook said that better global economic stability can be achieved by “restoring price stability, supported by clear communication, central bank independence, and strong financial oversight, while rebuilding fiscal buffers and using fiscal tools sparingly through temporary, targeted support that preserves price signals”.
On technology, it added that the most important factors are “structural reforms to promote energy security, AI readiness, domestic rebalancing, and international cooperation being strengthened to relieve the strain of ongoing tensions”.
Contact the writers at belindarobinson@chinadailyusa.com