IMF reports AI investment boom cushions global economy from Iran war energy 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.

AI is creating a new economic divide

For decades, economists looked at income, geography and natural resources to explain which countries pulled ahead. Driving the news: The International Monetary Fund on Wednesday left its global growth forecast largely unchanged at 3% this year, a modest slowdown from recent years. But beneath that steady outlook, countries are diverging based on energy shocks and AI. * Trump's declaration that the Iran ceasefire is over -- and the resulting surge in oil prices -- brings the IMF's biggest downside risk back into focus. * The fund warns that a broader Middle East conflict could trigger far larger disruptions to commodity markets, supply chains and financial conditions than its baseline assumes. The fund held its 2.3% U.S. growth forecast, saying that technology investment is offsetting geopolitical headwinds. * Among advanced economies, the outlook is diverging. Energy exporters like the U.S. are better insulated from Iran war effects, while importers face a steeper drag -- unless technology-related growth helps make up the difference. What they're saying: "The part that did surprise us relative to April was the importance and the strength of the technology cycle, AI investment -- and the benefit that brought to a number of countries," IMF economist Petya Koeva Brooks told reporters Wednesday morning. * The global economy is being pulled by two very different forces: a war shock that's broadly felt and an AI boom that's more narrowly shared. * "While on the one hand the war shock is affecting most countries, I think the AI technology boom is really much more concentrated in a smaller group of countries," she said. The intrigue: The IMF says the world's top AI hardware exporters -- South Korea, Taiwan, Malaysia and Thailand -- beat its forecasts by an average of 4.4 percentage points in the first quarter. * The rest of the world undershot by 0.3 percentage point. Zoom in: South Korea's economy grew at a 7.5% annualized pace in the first quarter, more than four times the 1.8% growth the fund projected in April. * Booming semiconductor exports overwhelmed its dependence on Middle Eastern energy imports. * The IMF raised Vietnam's 2026 growth forecast by 0.4 percentage point, to 7.5%, citing stronger-than-expected technology exports. The other side: Outlooks weakened for energy importers and low-income nations with less exposure to AI. The big picture: Massive investment in chips, servers and data centers is boosting demand today, while the productivity gains that could eventually ease inflation remain in the future. * The IMF now expects global inflation to reach 4.7% this year, up from its April forecast, before easing to 3.9% next year. * "[T]hese projections indicate that the disinflation trend in place since the beginning of 2024 has stalled," the IMF wrote in its forecast. * The fund says "higher demand pressures from the technology-led upturn" could require central banks to keep monetary policy tighter to avoid overheating. The bottom line: The countries getting the biggest boost from the AI boom could also have the most at stake if the technology fails to deliver on today's lofty expectations.

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.

IMF Says AI Investment Is Supporting Global Growth, but Productivity Gains Are Yet to Come

The International Monetary Fund (IMF) said artificial intelligence is supporting the global economy through the technology-driven investment boom, but its latest forecasts do not yet assume any productivity gains from AI, while inflation risks remain elevated. AI Investment Offsets Geopolitical Headwinds In its July World Economic Outlook update, the IMF said the global economy is being shaped by two opposing forces: the lingering effects of the conflict involving Iran and an AI-driven investment boom. The IMF projected global growth of 3% in 2026 and 3.4% in 2027, down from the 3.5% average recorded in 2024 - 2025, while the outlook was broadly unchanged from its April forecast on a cumulative basis. Its baseline assumes the AI-driven technology cycle moderates from current levels and includes no exogenous boost to productivity from AI, while adding that faster AI adoption could lift growth beyond the baseline forecast. The Federal Reserve's June policy meeting cited "AI-related price pressures" as one factor behind higher core goods inflation. The Fed also said AI could eventually boost productivity, but that the effect "would likely take time to materialize." Inflation Risks Remain Elevated The IMF raised its global headline inflation forecast for 2026 to 4.7%, saying the disinflation trend that had been underway since early 2024 has stalled. It added that central banks should remain focused on price stability as commodity prices, technology-driven demand and inflation expectations continue to shape the outlook. The IMF said a weaker-than-expected payoff from artificial intelligence could trigger a pullback in technology investment and a sharp correction in richly valued technology stocks, particularly in economies and markets with heavy exposure to AI-related companies. AI Spending Continues to Support Growth The AI investment cycle has been supported by strong demand for semiconductors, networking equipment and data center infrastructure, while hyperscalers continue to invest hundreds of billions of dollars in expanding AI capacity. The IMF added that economies integrated into the technology value chain have benefited from the AI-driven investment boom, helping cushion the effects of higher energy prices and geopolitical uncertainty. Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Photo courtesy: Shutterstock/Maxx-Studio Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.