The global economy is expected to remain resilient despite rising uncertainties, with growth projected at 3.3% in 2026 and 3.2% in 2027, from an estimated
3.3% expansion in 2025, the International Monetary Fund said in its January 2026 World Economic Outlook Update. The projection for 2026 at 3.3% is 20 basis points higher than the October forecast, while that for 2027 is unchanged.
The IMF said the steady headline numbers mask divergent forces at play. Headwinds from shifting trade policies and elevated policy uncertainty are being offset by strong investment linked to technology, including artificial intelligence, supportive fiscal and monetary policies, accommodative financial conditions, and the adaptability of the private sector, particularly in North America and parts of Asia.
IMF on India
India’s growth outlook remains one of the strongest, with expansion projected at 6.4% in both FY26 and FY28, after an upward revision to 7.3% for FY26 on the back of a stronger-than-expected outturn. India's growth projections are 6.3% for 2026 and 6.5% for 2027 based on calendar year, the IMF said in its report.
Global Inflation Set to Ease
Global headline inflation is projected to ease further, declining from an estimated 4.1% in 2025 to 3.8% in 2026 and 3.4% in 2027. The IMF noted that inflation is expected to return to target more gradually in the United States than in other large economies.
For advanced economies, growth is projected at 1.8% in 2026 and 1.7% in 2027. The US economy is expected to expand by 2.4% in 2026, supported by fiscal policy and lower policy rates, with growth moderating to 2.0% in 2027. In the euro area, growth is forecast at 1.3% in 2026 and 1.4% in 2027, reflecting subdued momentum amid unresolved structural headwinds. Japan’s growth is projected to slow to 0.7% in 2026 and 0.6% in 2027, partly offset by fiscal stimulus announced by the new government.
Among emerging market and developing economies, growth is expected to hover just above 4% in both 2026 and 2027. China’s growth forecast for 2026 has been revised up to 4.5%, supported by stimulus measures and lower effective US tariff rates following a trade truce, before easing to 4.0% in 2027.
World trade volume growth is expected to slow from 4.1% in 2025 to 2.6% in 2026 before recovering to 3.1% in 2027, reflecting front-loading of trade and adjustments to new trade policies. Energy prices are projected to fall further in 2026, with oil prices expected to decline amid tepid demand growth and strong supply, while natural gas prices are seen remaining contained.
US Information Technology Investment at all-time high, last seen in 2001
The IMF noted that Information Technology (IT) investment as a share of US economic output has surged to the highest level since 2001, providing a major boost to overall business investment and activity. Although this IT surge has been concentrated in the United States, it is also generating positive spillovers globally, most notably to Asia’s technology exports.
“The comparison with the dot-com boom of 1995-2000 is instructive. Even though IT investment as a share of gross domestic product is broadly similar to levels then, the recent rise has been more gradual, accelerating markedly only last year. Furthermore, while market valuations relative to economic output have expanded at a similar pace in both episodes, the rise in price-earnings ratios has been more modest in the current boom given more robust earnings. Overall, our analysis suggests that potential overvaluation for the broad equity index in the United States is only about half that of the dot-com episode,” the IMF said in its report.
Looking ahead, the IMF report said that the current tech boom raises important upside and downside risks for the global economy. On the upside, AI could start to deliver on its productivity promises, raising US and global activity by 0.3% this year, relative to the baseline. On the downside, AI firms could fail to deliver earnings commensurate with their lofty valuations, and investor sentiment could sour, and pull down global growth by 0.4% relative to the baseline.
Risks to Outlook on Downside
The IMF cautioned that risks to the outlook remain tilted to the downside. A reassessment of expectations around AI-driven productivity gains could trigger a sharp fall in investment and a correction in equity markets that have been increasingly driven by a small number of large technology firms. Renewed trade tensions, geopolitical shocks, and high public debt levels could also weigh on growth and financial stability.
On the upside, faster and broader adoption of AI could lift productivity and support stronger medium-term growth, while sustained easing in trade tensions could improve policy predictability and investment. The IMF called for policies focused on rebuilding fiscal buffers, maintaining price and financial stability, reducing uncertainty, and accelerating structural reforms to support durable growth
