The International Monetary Fund says the global economy is again proving resilient, but unevenly so and with rapidly narrowing margins of adjustment in the near term.

According to its October 2026 World Economic Outlook, activity in the first half of 2026 held up better than expected despite the dragging war in the Middle East and continuing strains from trade tensions.

It said the technology cycle has provided a demand impulse, driven by strong investment in artificial intelligence (AI). “The interaction of these forces—geopolitics and technology—has produced a split global economy: Favorable terms of trade or technology-related exports and investment give some countries a cushion, whereas others face higher import bills and weaker demand”.

Meanwhile, global growth is projected at 3.1% in 2026 and 3.4% in 2027, unchanged for 2026 and revised moderately upward for 2027. This is relative to the projections in the April 2026 World Economic Outlook (WEO).

Global headline inflation is also projected to increase to 4.7% in 2026 before easing to 4.1% in 2027, marking a cumulative upward revision of 0.7 percentage point with the temporary increase driven mainly by energy and food prices.

World Trade Volume to Slow

Again, the Bretton Woods institution said world trade volume growth is projected to slow in 2026 and stabilise in 2027, reflecting the drag from tariffs, adjustment in production chains, and continued strength in technology-related trade.

Also, global imbalances are expected to decline only modestly over the medium term, as large fiscal deficits, limited domestic rebalancing, technology-driven capital flows, and differing demand compositions across major economies under current policies continue to sustain external gaps.

It said the medium-term growth outlook remains lackluster by historical standards and uneven across countries, in part reflecting varying degrees of AI preparedness and robustness of the energy mix.

Risks Skewed to Downside

The IMF also stressed that risks are skewed to the downside.

According to the Washington-based firm, a prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated and volatile, revive inflationary pressures, worsen fiscal and external balances, and weigh on growth.

It said further disruptions to energy infrastructure, cyberattacks, or extreme weather events could amplify these effects.

“As the Commodity Special Feature shows, price increases driven by physical supply disruptions have larger and more persistent macroeconomic effects than those driven by geopolitical risks. A reassessment of AI-related profitability and productivity prospects could sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with spillovers to economies integrated into technology supply chains and stakes in technology stocks”, it added.