IMF warns of shrinking economic buffers and risks from an AI market downturn
The IMF says depleted emergency oil stocks and stretched government budgets leave the global economy vulnerable to further shocks. It slightly raised its 2026 growth forecast while separately warning that an AI share-price crash could spread across global markets.
theguardian.comIMF warns global economy ‘could soon test the limits of resilience’
Resilience under pressure
The International Monetary Fund warned that the global economy “could soon test the limits of resilience”, despite weathering the Middle East conflict better than it had feared over the past six months. Its World Economic Outlook said dwindling energy inventories and overstretched government budgets leave countries exposed to further shocks.
Rerouting oil supplies away from the strait of Hormuz and releasing strategic stocks helped contain the US-Iran war’s impact on oil prices, the IMF said. But depleted emergency reserves, high debt and deficits could limit governments’ ability to protect consumers from another price surge.
Growth outlook improves slightly
The IMF raised its global growth forecast for 2026 to 3.1%, from 3% in July, while leaving its 2027 forecast unchanged at 3.4%. It increased its UK forecast for this year to 1.3% from 1%, but cut next year’s projection to 1.2% from 1.3%.
The Fund said risks remained tilted to the downside, particularly from a prolonged stalemate or escalation in the Middle East. It expects global inflation of 4.7% this year and 4.1% in 2027, with next year’s forecast raised from 4% because of persistently elevated oil prices.
AI correction could spread globally
In its separate Global Financial Stability Report, the IMF identified high AI-company valuations and growing borrowing as threats to financial stability. It warned that weaker-than-expected investment returns or profitability could trigger an asset-price correction, reduce investment and tighten financial conditions globally.
The Fund said concentrated holdings, borrowing and financing arrangements linking stronger AI companies with weaker partners could amplify a downturn. The seven major technology stocks account for more than 35% of the US S&P 500 index, compared with 12% a decade ago, according to the report.
Other threats and policy priorities
Alongside an AI downturn, the financial stability report identified rising government borrowing costs and a major cyberattack as potential near-term triggers for market turmoil. It said Asian markets would be especially exposed to an AI correction outside the US, while the UK and euro area could be more insulated, although investors holding US assets would still be affected.
Launching the economic outlook in Bangkok, IMF economic counsellor Silvana Tenreyro urged policymakers to “move from just coping, to rebuilding”. Managing director Kristalina Georgieva also called on governments to tighten their budgets amid rising global debt.
