World Bank Lowers Global Growth Forecasts Amid Tariffs

The IMF has revised its 2026 global growth forecast downward to 3.1%, a 0.2 percentage-point cut from previous expectations, while maintaining the 2027 outlook at 3.2%, reflecting the economic fallout from the ongoing Middle East conflict. Although the baseline scenario assumes a contained conflict, the IMF warns that prolonged hostilities could further weaken the global economy and destabilize financial markets. It also noted that energy supply shock from the Iran conflict is comparable in severity to the 1974 oil crisis, though the global economy is now more resilient. By region, the US economy is expected to grow by 2.3% in 2026 and 2.1% in 2027. China’s growth is forecast to slow to 4.4% and 4.0%, respectively. The Euro Area is projected to expand by just 1.1% in 2026 and 1.2% in 2027, while the UK and Japan face similarly modest growth of 0.8% and 0.7% in 2026, compared to 1.3% and 0.6% in 2027. Global inflation is expected to rise modestly in 2026 before declining again in 2027.

Global GDP growth is expected to hold at 2.9% in 2026 before rising slightly to 3.0% in 2027, driven by strong tech investment and easing tariffs, according to the latest OECD Economic Outlook. However, the ongoing Middle East conflict continues to weigh on growth and introduce uncertainty, with projections assuming a temporary energy market disruption and price relief from mid-2026. Inflation forecasts were revised upward, with G20 advanced economies facing 4.0% headline inflation in 2026, 1.2 percentage points higher than previously anticipated, before moderating to 2.7% in 2027. Core inflation is projected to decline from 2.6% to 2.3% over the same period. By region, US growth is set to slow from 2.0% in 2026 to 1.7% in 2027, with inflation peaking at 4.2% this year. China’s growth is expected to ease to 4.4% in 2026 and 4.3% in 2027, while the Eurozone faces a sluggish 0.8% in 2026 before recovering to 1.2% in 2027. Japan’s growth remains modest at 0.9% for both years.

The IMF raised its global growth forecast to 3.3% from 3.1% this year, and warned that major risks are building. The upgrade reflects resilient activity, strong labour markets and heavy investment in new technologies, especially artificial intelligence. However, the IMF cautioned that these same forces could become sources of instability. Rapid AI-driven investment, particularly in North America and Asia, is supporting growth and equity markets, but if productivity gains fail to materialise, it could trigger sharp market corrections and weaken household wealth. Trade and geopolitical risks also remain elevated. While the impact of past tariffs is expected to fade, new disputes or a shift toward protectionism could hurt corporate profits and keep inflation pressures alive. Regionally, the fund expects solid growth in the US (2.6% in 2026), modest expansion in the Euro Area (1.3%), and stronger momentum in China (4.5%), underscoring an uneven but still resilient global outlook.