IMF Downgrades Global Economy Forecast to 3% as AI Investment Boom Cushions Iran War Shock

IMF expects world economy to grow a sluggish 3% this year, weighed down by Iran war but helped by AI

WASHINGTON (AP) -- The International Monetary Fund on Wednesday modestly downgraded its outlook for the world economy this year, citing the energy shock caused by the Iran war. But the fallout from the conflict is being partially offset by booming investment in artificial intelligence and other technologies. The IMF now expects the global economy to expand by a sluggish 3% in 2026, down from 3.5% last year and from the 3.1% it had forecast for this year back in April. Iran responded to U.S. and Israeli attacks Feb. 28 by shutting down the Strait of Hormuz, through which a fifth of the world's crude oil and natural gas passes. Energy prices soared, squeezing businesses and consumers. The IMF now expects oil prices to be up nearly 32% this year and for global consumer prices overall to increase 4.7% in 2026. That would be up from 4.1% in 2025 and would mean that two years of progress against inflation has stalled. Countries that produce and export their own energy and that benefit from AI investment are insulated from the war's economic damage. Among them is the United States. The IMF expects the U.S. economy -- the world's largest -- to grow a solid 2.3% this year, up from 2.1% in 2025 and unchanged from the April forecast. President Donald Trump's 2025 tax cuts, big gains in productivity and a strong stock market are also giving the American economy a lift. The 21 European countries that share the euro currency, hit hard by higher energy prices, are collectively forecast to grow just 0.9% this year, down from 1.4% in 2025. China, the world's No. 2 economy, is expected to expand 4.6% this year, down from 5% in 2026 but a bit faster than the IMF had expected in April. Weighed down by higher energy prices and a property market collapse, the Chinese economy is getting offsetting help from public works spending, a surge in high-tech manufacturing and booming exports. India is once again forecast to be the world's fastest-growing major economy, advancing at a 6.4% clip (down from a sizzling 7.7% last year) on strong consumer spending. The IMF is a 191-nation lending organization that works to promote economic growth and financial stability and to reduce global poverty.

AI boom offers rare bright spot for global economy

An employee handles semiconductor dies at a factory in Thailand. (Dario Pignatelli/Bloomberg News/Getty Images) The U.S.-led investment boom in artificial intelligence is helping the global economy weather the worst effects of the war with Iran, the International Monetary Fund said today. Global growth this year will slip to 3 percent, down from 3.5 percent last year, before rebounding to 3.4 percent next year, the fund said. The new figures reflect slightly slower growth this year and a bit faster recovery in 2027 compared with the IMF's April forecast. Energy-importing nations are bearing the brunt of the war's economic fallout. But the global economy overall is performing better than many economists feared when the conflict began. A key reason lies in global technology development. Thanks to a wave of U.S. investment, the top four exporters of AI-related chips and hardware -- Taiwan, South Korea, Thailand and Malaysia -- are all growing faster than the fund projected. Four U.S. companies -- Alphabet, Amazon, Meta and Microsoft -- plan to spend $700 billion this year on AI-related capital expenditures. (Amazon Executive Chairman Jeff Bezos owns The Washington Post.) South Korea, riding strong demand for semiconductors, will grow at an annual rate of 2.6 percent this year, the fund said, 0.7 percentage points faster than it expected in April. Catch up quickly every weekday morning with a rundown of the 7 most important and interesting stories. Sign up for The 7 newsletter.