The IMF has lowered its global growth forecast by 0.1 percentage point and raised its growth forecast for China’s economy by 0.2 percentage points—how should we interpret this?

The report’s title is: It describes the current global economy as follows: "The modest slowdown reflects the effects of the war in the Middle East being partly offset by accelerated demand-driven momentum in the global technology cycle thanks to advances in artificial intelligence (AI) and its adoption." In simple terms: on the one hand, the Middle East conflict has triggered an energy supply shock, negatively affecting the economy; on the other hand, AI-driven technological progress has generated a positive economic impact. Taken together, these two forces have only slightly dragged down global economic growth. Yet country-specific outcomes vary significantly—depending largely on how severely each nation is affected by the oil supply shock and its position within the AI industrial chain (assuming it even participates in that chain). The report’s projection for China’s economy reads: "China's 2026 growth is projected to slow to 4.6 percent, as higher global oil prices, together with protracted uncertainty and structural headwinds, are expected to weigh on activity." That is, although China’s AI-related growth is also impressive, its economy is simultaneously weighed down by rising oil prices and other uncertainties or structural headwinds. The term "uncertainty" naturally refers to the oft-cited “great changes unseen in a century”—a phrase highlighting intensifying geopolitical uncertainty across the globe, which inevitably introduces volatility into economic growth. Rising oil prices are just one manifestation of this broader uncertainty.

When AI euphoria collides with an oil crisis: Are both 1999 and 1990 repeating themselves simultaneously?

U.S. real GDP growth in 2026 is projected at 2.2%, a slight downward revision from earlier forecasts. Higher oil prices will squeeze household disposable income, pushing consumer spending growth down to 1.9%; however, fiscal spending, accommodative financial conditions, and AI-related investment continue to provide support. The unemployment rate is expected to remain near 4.3% throughout the year, with the labor market shifting from prior fragility toward stability. The real challenge lies in inflation. Core PCE inflation is projected at 3.0% year-on-year for Q4 2026; headline PCE inflation is expected to briefly approach 4% before falling to 3.3% by year-end. While oil prices and tariffs may deliver only temporary shocks, persistently strong demand, short-term pricing pressures from AI investment, and rising inflation expectations all make the path toward a natural return to the 2% target significantly more difficult. The Fed’s baseline scenario calls for no policy change over the longer term. What has truly shifted is the risk balance: if employment suddenly weakens, rate cuts remain possible—but the more salient risk now is that stickier inflation could force the Fed to hike rates. The U.S. fiscal deficit is projected to reach nearly 6.6% of GDP this year; the Iran conflict and rising defense expenditures pose further upside risks to the 2027 budget. Europe hit directly by oil prices—technically, a recession is just one step away Europe’s problem is more straightforward: as a major energy importer, it faces a direct energy shock—while its central bank must still raise rates. The euro area’s 2026 GDP growth forecast has been cut to 0.5%, down from 1.1%; 2027 growth is projected at 1.1%. Q2 GDP is expected to contract 0.1% quarter-on-quarter; under the baseline scenario, Q3 growth will be flat—placing the region perilously close to technical recession. Energy prices are fueling inflation and eroding real incomes; business investment is dampened by uncertainty, prompting households to increase savings; financial conditions are tightening; and external demand is weakened by slowing global growth. Inflationary pressures are clearly mounting. The euro area’s HICP is projected to average 3.1% this year and 2.5% in 2027; core HICP is expected to hold steady at 2.4% in both years. The European Central Bank had originally been expected to hold rates steady—but its new path now includes a 50-basis-point rate hike in summer, lifting the deposit facility rate to 2.50%. Germany retains fiscal stimulus as a stabilizer, but soaring energy costs and weakening private consumption will constrain growth this year. Germany’s 2026 GDP growth is projected at 0.5%, rising to 1.3% in 2027—supported by normalization of external conditions and fiscal outlays. Germany’s general government deficit-to-GDP ratio is expected to rise to 4.1% this year. The UK entered the energy shock from a relatively stronger starting point. Robust Q1 growth and manufacturing inventory buildup support a 2026 GDP growth forecast of 1.0%, rising to 1.2% in 2027. Yet from summer onward, high energy prices and indirect price increases will squeeze household spending. CPI is projected at 3.2% this year and 2.7% next year; the Bank of England is expected to keep its policy rate unchanged at 3.75% this year, with cuts beginning only in 2027. Unemployment is projected to rise to 5.4% by late summer.

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OECD expects AI boom to help offset Middle East energy shock for now

FAQ