Standfirst: The International Monetary Fund has upgraded its forecast for global economic growth in 2026, citing resilient advanced economies and investment linked to artificial intelligence. However, the eurozone outlook remains subdued as high energy prices, inflation and weak consumer confidence weigh on activity.
The International Monetary Fund (IMF) expects the global economy to grow by 3.1% in 2026, an improvement of 0.2 percentage points from its July forecast. The upgrade reflects stronger-than-expected resilience in advanced economies and increased investment connected to artificial intelligence.
But the outlook is uneven. Global growth is still expected to slow from 3.5% in 2025, while the eurozone is forecast to expand by only 1.1% this year. The IMF expects a modest improvement to 1.2% in 2027, with energy costs and inflation continuing to constrain households and businesses.
Eurozone growth remains vulnerable to energy prices
The IMF’s latest World Economic Outlook points to high energy prices as one of the main risks facing the eurozone. Conflict in the Middle East and Russia’s continuing war against Ukraine have contributed to higher oil and gas costs, increasing pressure on economies that rely heavily on imported energy.
The fund also warned that gas inventories in parts of Europe remain below seasonal norms. That leaves energy markets exposed to disruption from adverse weather ahead of the winter heating season.
Eurozone gross domestic product rebounded by 2.6% in the second quarter after recording no growth in the first three months of the year. However, the IMF expects that quarterly improvement to translate into only limited annual expansion.
Inflation is projected to remain above the European Central Bank’s 2% target, reaching 3.1% in 2026 and 2.8% in 2027. Core inflation is expected to return to 2% only gradually, with the IMF projecting that this could happen in the eurozone by the middle of 2028.
What the forecast means for ECB policy
The inflation outlook may keep pressure on the European Central Bank to maintain interest rates at levels that restrain household spending and business investment. The ECB makes its own decisions based on incoming data and is not bound by the IMF’s projections.
Higher borrowing costs can affect mortgages, loans and investment, although commercial bank rates also depend on competition, risk assessments and wider financial-market conditions. The IMF’s assessment therefore signals continued pressure rather than guaranteeing a particular ECB interest-rate decision.
Germany, France and Spain face different outlooks
The IMF expects significant differences among Europe’s largest economies:
- Germany: Growth is forecast to reach 1.3% in 2026.
- Spain: The economy is expected to expand by 2.5%.
- France: Growth is projected at 0.4%, down from 0.9% in 2025, while unemployment is forecast to rise to 8.4% from 7.7% last year.
The figures underline the uneven nature of the European economy. Countries face the same broad energy and inflation pressures, but their performance is also shaped by domestic demand, industrial exposure, labour-market conditions and public investment.
For the United Kingdom, the IMF raised its 2026 growth forecast to 1.3%, an increase of 0.3 percentage points from its July assessment. Growth is nevertheless expected to slow to 1.2% in 2027 as higher energy prices and long-term interest rates weigh on consumption and investment.
AI investment supports growth but creates new risks
Artificial-intelligence investment is helping support the global economy, particularly in countries connected to the technology supply chain. The IMF said advanced economies are expected to grow by 2.1% in 2026, while Taiwan and South Korea are among those benefiting from strong technology-related demand.
However, the fund described the outlook as increasingly divided. Economies participating in the AI investment boom may receive a substantial boost, while energy-importing and lower-income countries without comparable exposure remain more vulnerable.
The IMF also cautioned that the technology-driven tailwind could weaken abruptly if expectations about AI profits and productivity gains are revised. A sharp reassessment could reduce investment and tighten financial conditions.
Global inflation and geopolitical risks
Global inflation is forecast to rise to 4.7% in 2026, according to the IMF. The fund linked the increase to higher energy costs and the broader effects of geopolitical conflict.
It expects China’s growth to slow to 4.5% this year, a reduction of 0.5 percentage points, mainly because of weak domestic demand. The combination of slower Chinese growth, higher energy prices and uncertainty over technology investment could complicate the outlook for European exporters.
The IMF has called on governments to use temporary and targeted measures to protect households from high energy and other costs. It also said monetary policy should remain focused on price stability, while governments work to rebuild fiscal space and strengthen supply chains.
What the IMF forecast means for Europe
The forecast does not represent a new European Union policy or a decision by the European Central Bank. It is an economic assessment that may inform debate among governments, businesses and financial institutions.
For European policymakers, the central challenge is balancing support for households and investment with efforts to prevent inflation from becoming entrenched. Energy security will remain particularly important as countries prepare for winter and seek to reduce exposure to volatile global markets.
Ireland, as a eurozone member, is indirectly affected by the regional inflation and interest-rate outlook. Irish households and businesses may feel the effects through borrowing costs, energy prices, demand in key export markets and wider economic conditions. The IMF forecast does not, however, provide a separate growth estimate for Ireland in the information available for this report.
Conclusion
The IMF’s latest assessment offers a cautiously improved picture for global growth, but it also highlights the fragility of the recovery. The eurozone outlook remains weak at 1.1% growth in 2026, with energy prices, inflation and interest rates likely to limit momentum. For Europe, the key issues to watch are energy-market stability, the ECB’s response to persistent inflation and whether AI investment delivers durable productivity gains rather than a temporary boost.
