IMF outlook: How the latest forecast sends mixed signals on global growth

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The International Monetary Fund's predictions are positive but the warning of its chief Kristalina Georgieva underscores serious risks for the world economy. There is a simple explanation for this gap.

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The words of novelist George R.R. Martin made an unlikely appearance in a recent speech delivered by International Monetary Fund (IMF) managing director Kristalina Georgieva: “Winter is coming.”

This is the motto of the House of Stark in A Song of Ice and Fire novels written by Martin that were adapted for television later. It is also advice to get ready for hard times. Georgieva was thus sending a warning to prepare for a downturn.

Meanwhile, the organization she leads has released its latest estimates for economic growth in IMF member countries. It is a mixed bag. Global output is expected to grow by 3.1% in 2026, which is 0.4 percentage points lower than last year. Much of this is explained by slower growth in middle-income countries, especially China and India.

Yet, the new number is no different from the global growth forecast that the IMF had released in April. And the multilateral lender said global economic output next year will likely expand slightly faster than what it had expected six months ago. The West Asia war and the subsequent increase in energy prices does not seem to have done too much damage, at least for now.

There is a simple explanation for the gap between the word of caution that the IMF chief used and the numbers that IMF economists have released. Published forecasts usually report the central point in a range of possible outcomes emanating from statistical models, while speeches describe tail risks in uncertain times. Institutions that care for their credibility should sometimes warn rather than habitually cheer.

The global economy has been hit by multiple shocks after 2019—the pandemic, Russia-Ukraine war, US tariffs and the expanding footprint of the war in West Asia. However, despite all these convulsions, the current rate of global economic expansion is not too different from what it was in the seven years before the pandemic. The global economy’s resilience is noteworthy.

This resilience has come with costs. Any robust system needs buffers to help withstand shocks. The underlying reason is that stocks are less volatile than flows. The stability of a system depends on the size of a stock compared to the disturbance in a flow. The world used its strategic petroleum reserves to soften the blow from disruption of oil supplies through the Strait of Hormuz.

Buffers eventually start to feel the pressure as well when the shock stretches out over time. Textbook macroeconomic shock absorbers are already under pressure. The ability of most countries to ease fiscal policy to support economic activity is now restricted by the escalating burden of public debt. And the ability to provide monetary stimulus through either lower interest rates or an expansion in central bank money has been upended by rising inflation. Resilience could be tested in the coming years.

The latest edition of the World Economic Outlook, the IMF’s biannual health report on the global economy, was written before the recent selloff in global technology stocks because of rising borrowing costs, hotter-than-expected US inflation data and growing scepticism over returns on massive infrastructure capital expenditures. One chart in the report distributes the economies of member countries along two axes—exposure to artificial intelligence (AI) and to rising energy prices.

A few years after the North Atlantic financial crisis of 2008, the IMF had mentioned the possibility of a two-speed global economy, depending on how badly a country was affected by the near-meltdown in the financial system. The multilateral lender has now used nearly identical language to describe the current situation—the language of winners and losers.

Some countries will be lifted by the boom in AI investments while others will be hit hard by the energy shock. The IMF has placed India in the quadrant comprising countries that could benefit from the integration of their trade with the AI technology cycle while being exposed to the deleterious effects of a further deterioration in their net energy exports.

One of the intriguing aspects of the new IMF report on the state of the world economy is that the effect of US tariffs on global economic growth has now been relegated to a less important position in its list of risks, much less than concerns about a further escalation in global energy prices or a sudden end of the AI investment boom. This is in stark contrast to what the IMF had said in October 2025, when tariff increases were the lead risk.

What happened? It is tempting to say that the world has learnt to live with higher tariffs. But the IMF says that court rulings and executive actions in the US have ensured that the US effective statutory tariff rate was about 5.3 percentage points below the level assumed earlier.

Meanwhile, a New York Federal Reserve study published on 8 October estimates that tariffs had added 2.9 percentage points to US inflation in a basket of goods by February 2026, which would otherwise have fallen by almost 1%. Significantly, the price increases were not restricted only to imported goods. They were seen in goods produced in the US as well.

Nobody should be surprised with these findings.

The author is executive director at Artha India Research Advisors.

About the Author

Niranjan Rajadhyaksha is the executive director of Artha Global (India), a public policy consulting firm. He has previously been the research director of IDFC Institute and executive editor of Mint. He has been writing on economics issues for more than 35 years. Niranjan has been awarded the Ramnath Goenka Award for excellence in journalism and the B.R. Shenoy Award for his contributions to Indian economics. He has been an advisor to academic institutions such as the Meghnad Desai Academy of Economics and think-tanks such as the Centre For Civil Society. He has a PhD in economics from Mumbai University. His main areas of interest are macroeconomics, political economy and economic history, and he draws material for his column from academic literature as well as popular culture, economic data as well as cricket scores, the past as well as the present. This approach comes from the belief that economics is the study of mankind in the ordinary business of life, as the English economist Alfred Marshall wrote more than a hundred years ago. Niranjan was a member of the advisory committee for the fifth volume of the official history of the Reserve Bank of India. He is currently writing a book on the history of Indian economic policy.

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• #IMF
• #global economy