It also forecast global growth of 3.4% for 2027.
The IMF said that the projections are “down from the average of 3.5 percent observed in 2024–25 and broadly unchanged on a cumulative basis compared with the forecasts in the April 2026 World Economic Outlook (WEO).”
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The report, titled World Economic Outlook Update for July, said the rapid adoption of artificial intelligence (AI), driven by strong demand, has partly offset the economic impact of the war in the Middle East. It describes the global economy as being caught in the “crosscurrents of war and technology”.
According to the IMF, countries’ economic performance is increasingly being determined by two factors: their exposure to the war-induced energy shock and their position in the global technology value chain.
“Energy exporters outside the conflict zone benefit from favorable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers,” the report said. By contrast, “activity weakens for energy importers with limited participation in the technology value chain.”The IMF said the global economy has, so far, weathered the shock from the war better than feared.
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It said the impact on key areas such as commodity prices, inflation expectations and financial conditions has remained relatively limited.
However, it warned that these buffers are temporary and forward-looking indicators suggest softer momentum ahead.
“However, transmission is still in the early stages—commercial and strategic destocking have provided temporary relief from reduced energy flows, whereas forward-looking indicators such as supplychain pressure and manufacturing purchasing managers’ indices point to softer momentum ahead—and some countries are experiencing more strain than others.”
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The Fund expects global headline inflation to rise to 4.7% in 2026 from 4.1% in 2025, before easing to 3.9% in 2027, marking a pause in the disinflation trend that had been underway since early 2024.
Global trade is also expected to lose momentum, with trade volume growth projected to slow sharply from 5% in 2025 to 3.5% in 2026 before recovering to 4.3% in 2027.
“These dynamics reflect earlier front-loading and the drag from tariffs as well as the gradual adjustment of trade linkages and production chains through, among other things, trade diversion and rerouting and the brisk growth of technology-related trade flows,” it said.
Looking ahead, the IMF said risks to the outlook remain “more balanced than in April but still tilted to the downside.”