The International Monetary Fund (IMF) has lowered its global and Australian growth forecasts for 2026 in its latest update, warning the global economy remains caught between an oil shock and an AI boom.
The IMF’s July 2026 World Economic Outlook has trimmed Australia’s growth forecast to 1.9 per cent for the year, down from its 2.0 per cent projection in April, while its 2027 growth forecast was left unchanged at 1.7 per cent.
The global lender also revised its 2026 global growth forecast to 3.0 per cent, down from its April forecast of 3.1 per cent growth.
However, it said the global economy had managed to avoid the possibility of a sharper downturn following the disruption to energy supplies from the Iran war, helped by strong demand for AI and other technologies.
It forecast a rebound in 2027, with global growth expected to accelerate to 3.4 per cent. Despite the increase, this projection remains below the average of 3.5 per cent observed in 2024-2025.
Alongside geopolitical risks, the IMF also warned that growth risks remain if expectations for AI profits and productivity gains were revised lower, with a potential bubble burst amplifying losses for AI-exposed investors.
“In such a scenario, investment in technology-intensive sectors could retrench abruptly, and frothy equity valuations – particularly in AI-exporting economies and markets with high concentration in technology firms – could correct sharply,” the report stated.
“The broader consequence could be tighter global financial conditions, balance sheet pressures, and weaker activity extending beyond the technology sector.”
The IMF also increased global headline inflation from 4.1 per cent in 2025 to 4.7 per cent in 2026 before declining to 3.9 per cent in 2027. This marks a slightly revised upward revision from April, with the organisation stating the projections indicated that “the disinflation trend in place since the beginning of 2024 has stalled.”
Meanwhile, although Australia’s outlook was downgraded, the global lender said it still expected the economy to grow faster than many advanced economies over the next two years, placing it 18th out of its modelling of 30 large economies.
On average, the IMF projected modest growth for advanced economies at 1.7 per cent in 2026 and 1.8 per cent in 2027, though it flagged stronger prospects for energy exporters and AI-linked industries.
This placed Australia ahead of all G7 economies except the US, whose growth remained “virtually unchanged” from April 2.3 per cent and 2.4 per cent for 2026 and 2027, respectively.
However, Australia still remained behind some advanced economies, including South Korea and Spain.
In a statement, Treasurer Jim Chalmers said Australia was well-placed to manage both the oil shock and the AI boom.
“We have more fuel today than we had before the war and investment in AI infrastructure is booming, which contributed to CAPEX being six times higher than expected in the most recent quarter,” Chalmers said.
