Photo courtesy – Jack Moreh/Freerange Stock

From Opinions Desk

The IMF launched its latest World Economic Outlook Update titled Global Economy in the Cross Currents of War and Technology. Petya Koeva Brooks, Deputy Director of the Research Department, IMF presented the salient points of the report.

Petya Brooks said that the global outlook is being shaped by two powerful forces pulling in opposite directions: the lingering effects of the energy shock from the war in West Asia and a technology-driven investment boom. Developments overnight illustrate the uncertainty and risks that surround the outlook. So far, the net effect of these forces varies significantly across countries depending on their exposure to the war and their position in the technology value chain.

“We are projecting global growth of 3 percent in 2026 and 3.4 percent in 2027, broadly unchanged from April on a cumulative basis.  In effect, we expect a V-shaped recovery, weaker growth this year relative to our pre-war forecast, followed by a rebound next year,” said Brooks.

On inflation, the picture is somewhat less encouraging according to the Report.  Global headline inflation has been revised up to 4.7 percent this year, while the core inflation forecast is broadly unchanged.  Placed simply, the disinflation trend that has been in place since early 2024 has stalled. 

Nevertheless, the world economy has weathered the shock from the war better than feared so far, with limited evidence of second-round effects. A larger spike in oil prices was avoided thanks to inventory drawdowns, expanded production outside the Gulf and actions to help soften oil demand. And a steady rise in the renewable energy share, combined with lower energy intensity than just a few years ago, has also made many economies more resilient. And while financial conditions tightened sharply in April, they have since eased and remained supportive by historical standards. 

The forecast assumes that the Strait of Hormuz begins reopening in mid-July, with conditions normalising to the pre-war state by March of 2027. Commodity price assumptions are based on market pricing as of June 10th, which implied an average oil price of USD 89 a barrel for 2026. Though the futures curve since shifted down a bit, although, of course, developments go in the other direction this morning.  The Report also assumes policy and geopolitical uncertainty remain elevated throughout 2027 and that the AI-driven technology cycle moderates from here with no exogenous boost to productivity. 

The risks to this outlook remain tilted to the downside and there’s a lot of uncertainty according to the Report.  A renewed escalation in the conflict could reignite commodity price volatility, tighten financial conditions, strain policy buffers and worsen food insecurity in low-income countries.  A market correction driven by a reassessment of AI profitability is another key downside risk.  On the upside, faster AI adoption could lift growth, and a swifter than expected normalisation of trade through the Strait of Hormuz would also be a positive surprise. 

As for the policy recommendations, the Report recommends that the Central Banks should remain focused on price stability, though the appropriate response will vary by country depending on how commodity prices, the tech-driven demand and inflation expectations interact.  The Report notes that many governments have deployed fiscal tools in response to the war, so far at limited cost.  But as the shock fades, energy-related fiscal support should be unwound and rebuilding fiscal space remains essential given elevated debt.  Over the medium term, advancing structural reforms, including the energy transition and addressing domestic imbalances will be critical to strengthen resilience and sustain balanced growth.