The International Monetary Fund noted that global economic growth endured so far, but “rising inflation and narrowing buffers demand policy action now.” In its World Economic Outlook report, released on Tuesday under the title of “Resilience Under Strain, Urgent Choices,” the IMF said that global economic activity has proven resilient once again amid conflicts in several parts of the world.
The technology upturn, buffers, and adaptations have helped mitigate the damage from geopolitics-driven disruptions. Global growth is projected to slow to 3.1 percent in 2026 and rebound to 3.4 percent in 2027, according to the October edition of the report. Global headline inflation is projected to rise notably to 4.7 percent in 2026 before easing to 4.1 percent in 2027.
Energy-importing economies outside the technology value chain face the most difficult outlook. But the margins of adjustment that helped resilience are not limitless, and risks are skewed to the downside. Further escalation in conflicts, a reassessment of expectations surrounding artificial intelligence (AI), renewed trade tensions, and fiscal vulnerabilities could weaken growth.
On the upside, stronger momentum in AI investment and productivity gains from AI or a sustained easing of geopolitical and trade tensions could strengthen growth. Fiscal frameworks must deliver better results when dealing with disruptive shocks and building policy space through revenue measures.
During cost of living crises, governments should preserve price signals and rely primarily on temporary, targeted income support for the most vulnerable. Chapter 3 finds that the global effects of corporate income tax policy changes depend on how they are financed.
Debt-financed tax cuts support domestic activity but can generate negative spillovers abroad in the short term. Over time, spillovers can be positive, thanks to cross-border knowledge transfer, but lower revenues can constrain public investment domestically, particularly in emerging market and developing economies. The global economy is still resilient, but resilience is increasingly uneven and costly.
Activity has held up despite the war in the Middle East, supported by use of buffers, private sector adaptation, and strong investment in artificial intelligence. Yet inflation is rising, the divide between economies benefiting from the technology upcycle or favorable terms of trade and those facing higher import bills and weaker demand is widening, and the margins of adjustment are thinning.
Assuming the conflict does not escalate further and energy markets gradually normalize, global growth is projected to slow to 3.1 percent in 2026 before rising to 3.4 percent in 2027, while inflation rises to 4.7 percent before easing to 4.1 percent in 2027.
Over the past five years, food and energy price surges have strained household budgets and fueled economic and social pressures across the world. Drawing on new evidence from a global database of policy interventions and a novel economic model, it assesses how governments have responded and which policies work best.
The findings show that targeted, temporary transfers offer the most effective and cost-efficient protection for vulnerable households, while preserving fiscal space and allowing prices to adjust. The globalization of production, the rise of multinational corporations, and the growing importance of intangible assets have transformed the landscape of corporate income taxation.
While governments continue to respond strategically to one another’s corporate income tax policies, anti-avoidance rules have weakened incentives for profit shifting, while real investment has become more sensitive to differences in tax rates.
This suggests that profits and economic activity are moving back into alignment. The global effects of corporate income tax policy changes depend on how they are financed. Debt-financed tax cuts support domestic activity but can generate negative spillovers abroad in the short term, the report cautioned.
Over time, spillovers can be positive, thanks to cross-border knowledge transfers, but lower revenues can constrain public investment domestically, particularly in emerging market and developing economies. Stronger antiavoidance frameworks help mitigate these trade-offs, the report added.
— KUNA