Global Economy Between AI Boom and Crises: What’s Coming in 2027?

Global growth may not pick up momentum again until next year. At least that is what the International Monetary Fund (IMF) forecasts in its latest World Economic Outlook. While growth of 3.1% is expected for this year, the forecast for 2027 is 3.4%, provided the situation in the Middle East normalises as expected.

High energy prices weighed on the global economy, the IMF added. At the same time, however, substantial investments in Artificial Intelligence (AI) supported the economy. The IMF expects significantly higher growth for India, and also for Germany, especially for this year. The USA and China are also key growth drivers.

AI Investments Bolster Global Economy

The global economy has performed better so far this year than expected, according to the IMF. However, in addition to the wars in the Middle East and Ukraine, there are numerous other risks. Trade disputes hang over the global economy like a dark cloud. Energy prices are not only higher but also more volatile. Debt is also high in major countries and continues to rise. The AI boom is providing a counterbalance. The share of trade in AI hardware has grown exponentially. The USA and China are particularly active here.

AI is also boosting growth in India and other Asian countries, said the new IMF Chief Economist Silvana Tenreyro to journalists last week during the presentation of the economic outlook in Bangkok. Without the AI boost, global trade would have grown much more slowly. It increased by 8.3% between 2023 and 2025, while the AI-related portion grew by 29%.

As of October 2026

Energy prices likely to remain high even if situation in Iran calms down

Energy prices and thus inflation are likely to remain high, the IMF expects. The Iran war started by the USA led to restrictions on oil and gas deliveries through the Strait of Hormuz this year. The IMF assumes that the situation in the important strait in the Persian Gulf will gradually improve in 2027. By October 2027, the shipping route should be largely usable again as it was before the war.

Nevertheless, uncertainty is likely to remain high, as are energy prices. Global inflation is thus expected to rise to 4.7% in 2026 (2025: 4.1%). In 2027, the IMF estimates it will fall back to 4.1%, but this is 0.2 percentage points higher than previously assumed.

Ireland and Spain grow particularly strongly compared to the EU average

In Europe, Ireland and Spain are likely to report particularly high growth rates. But the IMF also expects more from Germany—a plus of 1.3% in 2026, then 1.1% in 2027. This raised the estimate for 2026 by 0.6 points and for 2027 by 0.1 points. Leading research institutes and the German federal government had also recently significantly raised their forecasts.

Growth is driven primarily by debt-financed government investment, as well as exports. However, many companies are hesitant to invest in this country, and consumption is also weak. For Austria, the IMF forecasts a GDP increase of 0.06% for this year and 0.9% for 2027.

The IMF predicts growth of 2.3% each for 2026 and 2027 for the USA, supported by private consumption, high government spending, and technology investments. China will grow by 4.5% and 4.0%, a fraction lower than previously estimated.

India likely to overtake Japan to become fourth-largest economy

The IMF expects India to grow by 7.0% in both 2026 and 2027. This is 0.6 and 0.3 points more than previously assumed. According to the IMF, the country will overtake Japan economically next year and would then be the fourth-largest economy in the world. India was in a strong position at the start of the energy price crisis triggered by the Iran war, said IMF Asia Director Krishna Srinivasan at the presentation of the economic outlook in Bangkok. “Growth was strong, fiscal discipline was firmly established, the country had extensive reserves, and so on. Against this background, India responded well to the shock.”

Overall, 95% of global growth is supported by only 32 countries, compared to 54 countries in April. The Gulf states are being affected by the war in their immediate neighborhood. Saudi Arabia’s economy is expected to shrink by 3.3% this year. In July, growth of 1.7% was still expected. Deep recessions are also predicted for Iran, Iraq, Kuwait, Qatar, and the United Arab Emirates.

IMF: Urgency required for global debt reduction

During the presentation of the economic outlook, the International Monetary Fund called on wealthier countries to get their budgets in order. Chief Economist Tenreyro emphasized that the IMF remains concerned about high debt levels and urged countries to begin budget cuts to reduce deficits.

Spending cuts, a reduction of the sometimes very high deficits, and a lowering of debt levels are necessary, according to a new IMF report on global debt. A delay will only make the necessary adjustments more difficult in the coming years. IMF expert Rodrigo Valdes said the framework conditions have changed. In view of high inflation and rising yields on government bonds, urgency is required. The latter makes it more expensive for states to take on new debt on the capital market.

Valdes said the pressure is increasing. Average government debt is heading towards the 100% mark of economic output. This is the highest level since the Second World War and leaves countries with little room for maneuver. The fiscal situation is worse this year than expected six months ago and also worse than expected a year ago. However, the majority of states are planning higher spending instead.

USA must save more, China must consume more, and Europe must invest more

During the presentation of the World Economic Outlook, IMF chief Kristalina Georgieva explicitly called on the world’s two largest economies, the USA and China, to step up. The United States could not solve its debt problem—as is usually the case—only through more growth. To put debt on a more sustainable path, further adjustments are necessary, for example in tax revenue or spending. US Treasury Secretary Scott Bessent recognizes that US deficits and the total debt of over $40 trillion are too high, Georgieva told journalists. Growth helps, of course, but it is not enough.

According to the IMF, China must change its business model—away from excessive exports and towards stronger domestic consumption. European countries—such as France at the moment—are also among the worst sinners in terms of debt. Europe must above all invest more in its own competitiveness. “Put quite simply: China must spend more, the USA must save more, and Europe must invest more,” said Georgieva.

 

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