IMF Lifts 2026 Global Growth Forecast to 3.1%, Warns of Bond and AI Risks

In its World Economic Outlook released during the IMF and World Bank annual meetings in Bangkok, the fund left its 2027 global growth forecast unchanged at 3.4%. It projected global inflation at 4.7% this year and 4.1% in 2027. The IMF said growth is becoming more uneven: 32 economies now account for 95% of global growth, down from 54 in April.

The fund raised South Korea's 2026 growth forecast to 3.3%, up 0.7 percentage point from July, citing robust semiconductor exports. It projected 2.8% growth for South Korea in 2027. Taiwan is forecast to grow 10.7% this year, while the United States is seen expanding 2.3% in both 2026 and 2027. The euro zone is expected to grow 1.1%, China 4.5% this year and 4.0% next year, and the Middle East and Central Asia is projected to contract 0.3%.

South Korea's Ministry of Finance and Economy said the revision reflected robust exports of AI hardware and chips, noting that the 0.7 percentage-point upgrade exceeded the 0.4 percentage-point increase for 41 advanced economies, whose 2026 growth forecast stood at 2.1%. The ministry said uncertainties persist, including the prolonged Middle East war and higher consumer prices. Yonhap reported that South Korea's September exports soared 83.5% from a year earlier to a record $120.9 billion, with semiconductor exports exceeding $60 billion for the first time. AMRO projected South Korea would grow 3.3% this year, and the OECD raised its 2026 forecast to 3.7% from 2.6%.

The IMF said the global economy 'could soon test the limits of resilience' as emergency oil stocks run low and government budgets become overstretched. It said oil inventories are being drawn down by about 2.7 million barrels a day, nearing levels that could trigger sharp price moves. The fund now estimates the Strait of Hormuz will reopen in March next year and return to pre-war conditions by October. It said risks are skewed to the downside, pointing to a prolonged stalemate or further escalation in the Middle East, trade fragmentation and renewed inflation pressures. It urged central banks not to overreact to short-term inflation jumps but to be ready to respond if price pressures become entrenched.

In its Global Financial Stability Report, the IMF warned that government bond yields could rise in a disorderly fashion as inflation, mounting debt and AI-related borrowing pressure sovereign bond markets. It said high debt loads and rollover risks make the bond market susceptible to more frequent fiscal and inflation shocks. The fund noted that hyperscalers' share of global investment-grade bond issuance has risen to 10% from less than 1% since 2024, and that hedge funds' share of U.S. Treasuries rose to about 9% in 2025 from about 4% in 2022. It said Japan is an exception, with liquidity in its government bond market continuing to deteriorate. The IMF urged debt managers to lengthen maturities.

The IMF also warned that the threat of an AI share-price crash is putting global financial stability at risk. It said an AI correction could be global, with Asian markets most exposed after the United States, while the UK and euro area could be more insulated though their investors with U.S. exposure would be hit. The fund noted that the 'Magnificent Seven' big tech stocks account for more than 35% of the S&P 500, up from 12% a decade ago, and their total market capitalization has increased by more than 50% in the past two years. It pointed to growing leverage, concentrated exposures and circular financing, including $300 billion worth of transactions between hyperscalers and weaker AI firms in the past three years, $650 billion in debt, and $1.4 trillion in future financial commitments. In a scenario where AI productivity gains fail to materialize, the IMF said U.S. equities could fall 20% and global growth could be 1.1% below its baseline by 2028, with Asia 1.7% lower.

The Guardian reported that an IMF scenario in which oil prices jump to $130 a barrel could push Australian petrol prices up by another 30 cents a litre and leave inflation as high as 4.5% in late 2026, adding pressure on the Reserve Bank of Australia to raise interest rates. Economists told the newspaper that every US$10 rise in global oil prices tends to add about 10 cents a litre at the bowser. The RBA raised rates for a fourth time last month, and minutes released on Tuesday showed board members discussed how the Middle East conflict had escalated and oil prices were substantially above the level assumed in August forecasts.

Editor's Summary

The IMF raised its 2026 global growth forecast to 3.1%, citing an AI investment boom that helped offset Middle East war shocks, while keeping 2027 growth at 3.4% and lifting South Korea's outlook to 3.3% on chip exports. It warned that sovereign bond yields could spike disorderly and that an AI share-price correction could spill across global markets. The fund also said low emergency oil stocks and stretched government budgets leave the world economy vulnerable to further shocks.