INTERNATIONAL MONETARY FUND

WORLD
ECONOMIC
OUTLOOK
UPDATE
Global Economy:
Steady amid Divergent Forces

2026
JAN
JAN
2026 WORLD ECONOMIC OUTLOOK UPDATE

Global Economy: Steady amid Divergent Forces

Global growth is projected to remain resilient at 3.3 percent in 2026 and at 3.2 percent in 2027: rates similar to
the estimated 3.3 percent outturn in 2025. The forecast marks a small upward revision for 2026 and no change
for 2027 compared with that in the October 2025 World Economic Outlook (WEO). This steady
performance on the surface results from the balancing of divergent forces. Headwinds from shifting trade policies are
offset by tailwinds from surging investment related to technology, including artificial intelligence (AI), more so in
North America and Asia than in other regions, as well as fiscal and monetary support, broadly accommodative
financial conditions, and adaptability of the private sector. Global headline inflation is expected to decline from an
estimated 4.1 percent in 2025 to 3.8 percent in 2026 and further to 3.4 percent in 2027. The inflation
projections are also broadly unchanged from those in October and envisage inflation returning to target more
gradually in the United States than in other large economies.
Risks to the outlook remain tilted to the downside. Reevaluation of productivity growth expectations about AI
could lead to a decline in investment and trigger an abrupt financial market correction, spreading from AI-linked
companies to other segments and eroding household wealth. Trade tensions could flare up, prolonging uncertainty
and weighing more heavily on activity. Domestic political tensions or geopolitical tensions could erupt, introducing
new layers of uncertainty and disrupting the global economy through their impact on financial markets, supply
chains, and commodity prices. Larger fiscal deficits and high public debt could put pressure on long-term interest
rates and, in turn, on broader financial conditions. On the upside, activity could be further lifted by AI-related
investment and eventually transform into sustainable growth if faster AI adoption translates into strong
productivity gains and increased business dynamism. Activity could also be supported by a sustained easing in
trade tensions. Policies to foster stability and sustainably lift medium-term growth prospects require a keen focus
on restoring fiscal buffers, preserving price and financial stability, reducing uncertainty, and implementing
structural reforms without further delay.
Momentum Is Uneven
Since the October 2025 WEO, trade tensions have continued to abate but remain subject to
occasional flare-ups. A dispute between China and the United States involving controls on
exports of semiconductors and rare earth minerals was quickly followed by a truce that reduced
bilateral tariffs until November 2026 and introduced a pause on export controls. US authorities
also removed, for all countries, tariffs on some agricultural products, offsetting the higher tariffs
on certain sectors that were previously announced and are now in effect. This leaves the overall
US effective tariff rate at about the same level as assumed in the October 2025 WEO (Figure 1),
but the changes for specific countries can be meaningful. The US Supreme Court is widely
expected to deliver a decision in early 2026 on the president’s use of the International
Emergency Economic Powers Act. Newly signed bilateral trade and other agreements, often
including significant investment and purchase commitments with limited public disclosure, also

International Monetary Fund | January 2026

WORLD ECONOMIC OUTLOOK UPDATE

add a layer of complexity. Policy uncertainty, Figure 1. Removal of Some US Tariffs Offsets Recently
Implemented Ones
although lower than it was in October, is still (US effective tariff rate, percent)
much higher than it was in January 2025. 28

Global financial conditions are still 24

accommodative, despite some volatility and 20

rising sovereign yields (Box 1). Stock prices of 16

major technology companies pulled further 12
apart from prices of other stocks (Figure 2). January 2026 WEO Update
8
Financial conditions, overall, changed little or October 2025 WEO
4
tightened only moderately. The US dollar
0
recovered slightly as the momentum of Jan. Mar. May Jul. Sep. Nov.
2025 25 25 25 25 25
investors’ hedging of exposures slowed but
came briefly under renewed pressure Sources: WTO-IMF Tariff Tracker; and IMF staff calculations.
Note: "Effective tariff rate" is a weighted average of announced statutory rates using
following the initiation of an investigation into pre-tariff (hence, pre-substitution) import weights. Calculations include only tariffs
that are in effect at the time noted on the x-axis; measures that are not specified
the Federal Reserve chair. and implemented are not included. WEO = World Economic Outlook.

Against this backdrop of stabilizing trade

Figure 2. Tech Companies Diverge Further from the Rest
tensions and supportive financial conditions, (Index, Dec. 2022 = 100)
the global economy has continued to be 500
remarkably resilient, adapting to the shifting 450 S&P 500
Magnificent 7
landscape and with momentum varying across 400 Excluding Magnificent 7
countries and sectors. In aggregate, global 350

growth in the third quarter of 2025 decelerated 300

250
to 2.4 percent on an annualized basis, above
200
expectations but with upside surprises in 150
some countries offset by downside surprises 100
in others. A boost from aerospace exports 50

lifted growth to 2.2 percent in France, 0

Dec. Jun. Dec. Jun. Dec. Jun. Dec.
whereas falling exports continued to weigh on 2022 23 23 24 24 25 25

activity in Germany, leaving real GDP Sources: Bloomberg Finance L.P.; and IMF staff calculations.
Note: The Magnificent 7 is an equal-dollar-weighted equity benchmark composed of
unchanged from the second to the third Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, and Meta. Although it includes
quarters. Japan’s economy contracted by 2.3 several of the most influential leaders in artificial intelligence (AI), it does not cover
all major AI-focused companies. For example, Oracle and Palantir are not part of
percent, with private and government the group.

consumption offsetting some of the contraction driven by private residential investment and
exports. China’s growth decelerated to 2.4 percent (as per staff estimates), with weak domestic
demand, especially in the housing sector, partly offset by resilient exports. Growth in the United
States accelerated to 4.3 percent, with a pickup in technology investment and expenditure
estimated to add about 0.3 percentage point to average annualized GDP growth in the first three
quarters of 2025, offsetting the drag from the federal government shutdown in the last quarter
of the year. There are also signs that technology-related investment contributed to activity in
Spain and the United Kingdom, though not at the same scale as in the United States. The mirror

2 International Monetary Fund | January 2026

WORLD ECONOMIC OUTLOOK UPDATE

image of soaring investment in information and Figure 3. Tech-Related Trade Flows Continue to Grow Briskly
(Percent, year over year)
technology sectors showed up as strong
Technology exports to US Technology exports to ROW
performance in exports of semiconductors and Other exports Total exports
other equipment in Asian economies. Even as 15 1. Asia Excluding China
signs of moderation have started to appear in 10
high-frequency data, global trade has remained 5
relatively robust, with brisk expansion in 0
technology-related exports offsetting slowing –5
momentum in exports in other product –10
categories (Figure 3). –15
Jan. Jul. Jan. Jul. Jan. Sep.
Global inflation has been largely steady. While the 2023 23 24 24 25 25

global median of sequential inflation has firmed 15 2. China

slightly, for both headline and core rates, annual 10

inflation has been stable, surprising mildly on 5

the downside. That said, in the United States, 0

–5
the high cost of living continues to be the most
–10
important concern cited in household surveys,
–15
and household expectations for one-year-ahead –20
inflation remain elevated, as do input prices in Jan.
2023
Jul.
23
Jan.
24
Jul.
24
Jan.
25
Sep.
25
manufacturing purchasing managers’ indexes. Sources: Haver Analytics; International Trade Center, Trade Map; and IMF staff
calculations.
Growth and Inflation Outlooks Note: "Technology" exports include those classified under Harmonized System codes
8419, 8470–8473, and 85. "Asia" includes Cambodia, China, India, Indonesia, Japan,
Korea, Malaysia, Singapore, Taiwan Province of China, Thailand, and Vietnam. Data
Diverge for Vietnam include computers, electronic products and parts; telephones, mobile
phones and parts; and insulated wires and cables. ROW = rest of the world.
IMF staff projections remain based on real-
Figure 4. Fiscal Stimulus Is Expected in Several Advanced
time current trade policy; that is, they assume Economies
that policies as they stood at the end of (Structural primary balance, percent of potential GDP)

December are permanent. This is so even in 0

regard to measures framed as temporary or

–1
pending, meaning that pauses on higher tariffs
are assumed to remain in place past their –2
expiration dates, and higher rates are assumed
not to take effect. The US effective tariff rate –3

underlying the projections is 18.5 percent,

compared with 18.7 percent in the October –4
January 2026 WEO Update
forecast. The corresponding effective tariff rate October 2025 WEO
–5
for the rest of the world is unchanged at 3.5 2025 26 27 28 29 30 25 26 27 28 29 30 25 26 27 28 29 30 30
Germany Japan United States
percent. Economic policy uncertainty is
assumed to remain elevated through 2026. Source: IMF staff calculations.
Note: The general government structural primary balance is the cyclically adjusted
Prices for energy commodities are expected to primary balance corrected for a broader range of noncyclical factors such as
changes in asset and commodity prices. WEO = World Economic Outlook.
fall by about 7 percent in 2026, more than
projected in the October 2025 WEO. Oil prices remain low and are expected to decrease further

International Monetary Fund | January 2026 3

WORLD ECONOMIC OUTLOOK UPDATE

on account of tepid global demand growth and strong supply growth. However, a soft price
floor is provided by higher-cost producers, Chinese strategic stockpiling, and the approach of
OPEC+ (Organization of the Petroleum Exporting Countries plus selected nonmember
countries) to avoid a price collapse. Natural gas prices are expected to remain relatively
contained amid lower energy demand resulting from uncertainty, more flexible European Union
(EU) storage targets, and the prospects of ample liquid natural gas supply in the medium term.
Monetary policy rates in the United Kingdom and the United States are expected to continue to
decline, though at varying speeds, whereas the IMF staff expects the policy rate in the euro area
to remain unchanged and Japan to raise its policy rate gradually. Fiscal policy in advanced
economies, particularly Germany, Japan, and the United States, is expected to be stimulative in
the near term, pivoting from a tariff-driven mildly contractionary stance in the United States
(Figure 4).
Global growth is expected to remain steady, with the momentum in high-tech sectors set to slow
but to continue to partly offset the drag elsewhere. While tariffs and uncertainty are projected to
continue to weigh on the level of activity, the effect on growth is expected to fade during 2026
and 2027. At 3.3 percent for 2026 and 3.2 percent for 2027, the forecasts mark a slight
deceleration from the estimated 3.3 percent achieved in 2025. The forecast for 2026 is revised
upward by 0.2 percentage point compared with that in the October 2025 WEO, while the
forecast for 2027 is unchanged (Table 1; see also Annex Table 1). There are, however, significant
revisions for some countries, with the changes in different directions.
Growth in advanced economies is projected to be 1.8 percent in 2026 and 1.7 percent in 2027. In the
United States, the economy is projected to expand by 2.4 percent in 2026, supported by fiscal
policy and a lower policy rate, while the impact of higher trade barriers also gradually wanes.
This 0.3 percentage point upward revision from the October forecast reflects a stronger-than-
expected GDP outturn in the third quarter of 2025, a rebound in activity in the first quarter of
2026 compared with that in the fourth quarter of 2025 following the end of the federal
government shutdown, and the associated carryover. Growth is projected to remain solid at 2.0
percent in 2027, with a near-term fiscal boost from tax incentives for corporate investment
under the One Big Beautiful Bill Act of 2025. Technology-driven momentum is expected to
moderate but still provide some offset to lower immigration and moderating consumption. In
the euro area, growth is expected to remain steady at 1.3 percent in 2026 and at 1.4 percent in
2027. The slightly faster growth in 2027 reflects projected increases in public spending, notably
in Germany, alongside continued strong performance in Ireland and Spain. The forecast is
broadly unchanged from that in October, with the subdued growth rate reflecting unresolved
structural headwinds. The impact of the planned increase in defense spending is expected to
materialize only in subsequent years, given commitments to reach target levels gradually by 2035.
Compared with other regions, the euro area benefits less from the recent technology-driven
investment boost. Lingering effects of the persistent rise in energy prices after Russia’s invasion
of Ukraine will continue to drag on manufacturing, with additional pressure from the real
appreciation of the euro relative to currencies of countries exporting similar products. In Japan,
growth is projected to moderate from 1.1 percent in 2025 to 0.7 percent in 2026 and to 0.6

4 International Monetary Fund | January 2026

WORLD ECONOMIC OUTLOOK UPDATE

percent in 2027. This marks a small upward revision relative to the October figure, reflecting in
part the fiscal stimulus package announced by the new government.
In emerging market and developing economies, growth is expected to continue to hover just above 4.0
percent in 2026 and 2027. Relative to the projection in October, growth in 2025 for China is
revised upward by 0.2 percentage point to 5.0 percent. The revision reflects stimulus measures
and additional policy bank lending for investment. Growth for 2026 is also revised upward by
0.3 percentage point to 4.5 percent, reflecting the lower US effective tariff rates on Chinese
goods as a result of the yearlong trade truce agreed to in November and stimulus measures that
are assumed to be implemented over two years. The economy’s growth rate is expected to
decelerate to 4.0 percent in 2027 as structural headwinds assert themselves. In India, growth is
revised upward by 0.7 percentage point to 7.3 percent for 2025, reflecting the better-than-
expected outturn in the third quarter of the year and strong momentum in the fourth quarter.
Growth is projected to moderate to 6.4 percent in 2026 and 2027 as cyclical and temporary
factors wane.
In the Middle East and Central Asia, growth is projected to accelerate from 3.7 percent in 2025 to
3.9 percent in 2026 and to 4.0 percent in 2027, supported by higher oil output, resilient local
demand, and ongoing reforms. Growth is also expected to accelerate in sub-Saharan Africa, from
4.4 percent in 2025 to 4.6 percent in 2026 and 2027, supported by macroeconomic stabilization
and reform efforts in key economies. In Latin America and the Caribbean, growth is projected to
moderate to 2.2 percent in 2026 and bounce to 2.7 percent in 2027 as countries in the region
approach potential from different cyclical positions. In emerging and developing Europe, a sharp
slowdown in 2025 to a growth rate of 2.0 percent is expected to reverse, with economies in the
region expanding at an average rate of 2.3 percent in 2026 and 2.4 percent in 2027. In most
regions, the rebound also reflects the fading effect of shifting trade policies.
World trade volume growth is expected to decline from 4.1 percent in 2025 to 2.6 percent in 2026
and increase to 3.1 percent in 2027. These Figure 5. Inflation Dynamics Diverge
dynamics reflect patterns of front-loading and (2026 inflation forecasts, percent, year over year)
trade flow adjustments to new policies. Over 3.5
the medium term, expansionary fiscal packages
3.0
in economies with current account surpluses
2.5
are expected to contribute to declining global
imbalances. Countering this force is the 2.0

technology-driven business investment surge, 1.5

which is expected to continue to attract capital 1.0 United States
Euro area
flows to the United States even as it moderates. China
0.5 AEs excluding US and euro area
Global inflation is projected to continue its 0.0
EMDEs excluding China

decline, with headline inflation falling to 3.8 Jul.

2024
Oct.
24
Jan.
25
Apr.
25
Jul.
25
Oct.
25
Jan.
26
percent in 2026 and 3.4 percent in 2027. This is
Source: IMF staff calculations.
virtually unchanged from that in the October Note: The x-axis shows the months the World Economic Outlook is published. The
two aggregates are medians of respective groups. AEs = advanced economies;
2025 WEO, with overarching trends of EMDEs = emerging market and developing economies.

International Monetary Fund | January 2026 5

WORLD ECONOMIC OUTLOOK UPDATE

softening demand and lower energy prices remaining intact. Divergence between the United
States and most other countries lingers (Figure 5). With pass-through from higher tariffs
gradually materializing, US core inflation is projected to return to the country’s 2 percent target
during 2027. Australia and Norway are also projected to see some drawn-out persistence in
above-target inflation. In the United Kingdom, inflation, which increased last year partly due to
one-off regulated price changes, is expected to return to target by the end of 2026 as a
weakening labor market continues to exert downward pressure on wage growth. In Japan,
inflation is expected to moderate in 2026 and converge toward the country’s target in 2027, as
food and commodity prices ease. In the euro area, headline inflation is projected to hover
around 2 percent, with core inflation projected to decline to that level in 2027. Inflation in China
is projected to start rising from low levels, whereas inflation in India is expected to go back to
near target levels after a marked decline in 2025 driven by subdued food prices.
Narrow Base of Drivers Makes Growth Vulnerable
Risks to the outlook for the global economy remain tilted to the downside. The resilience
exhibited so far is driven largely by a few sectors and often supported by monetary and fiscal
accommodation. It could be disrupted by either sectoral dynamics or shocks disseminating from
long-standing broader risk factors.
Should expectations about AI-driven productivity gains turn out to be overly optimistic and
outcomes disappoint, a sharp drop in real investment in the high-tech sector as well as in
spending on AI adoption in other sectors and a more prolonged correction in stock market
valuations—which have increasingly been lifted by only a few technology firms—could ensue.
The rapid obsolescence of unused or misaligned assets, costly reallocation of capital and labor
accompanied by a decline in business dynamism, and negative wealth effects would weigh on
private consumption and investment. Spillovers would spread, directly through trade flows, to
export-oriented economies specializing in technology products. These would radiate to the rest
of the world through the tightening of global financial conditions. The impact on growth is
highly uncertain and depends on how financial conditions react. As a reference, under a scenario
presented in the October 2025 WEO which includes a moderate correction in AI stock
valuations as part of a general tightening of financial conditions, global growth declines by 0.4
percent in 2026 relative to baseline.
The fragile balance of trade policy stances underlying the baseline could be disrupted. Additional
sector-specific tariffs, especially if imposed on upstream industries, could create supply
bottlenecks and impose an outsize impact on economic activity and prices. Nontariff measures
targeting critical inputs such as rare earth minerals might also disrupt global supply chains. More
countries could adopt a protectionist posture, especially if trade diversion and rerouting become
disruptive. In such instances, decompression of profit margins could amplify and prolong any
inflationary effects.
A significant escalation in geopolitical tensions, particularly in the Middle East or Ukraine but
possibly also in Asia and Latin America, could trigger substantial negative supply shocks.
Disruption to major shipping routes, critical supply chains, and air travel could occur, leading to

6 International Monetary Fund | January 2026

WORLD ECONOMIC OUTLOOK UPDATE

delays and increased costs. If key infrastructure were damaged, resulting supply constraints could
drive commodity prices higher. Spikes in domestic political uncertainty, including but not limited
to those around elections, could further elevate and broaden uncertainty, weighing on sentiment
and holding back consumption and investment. Political interference in independent economic
institutions could raise the risk of policy mistakes and erode public confidence and trust.
Combined with lingering fragilities in financial markets, fiscal vulnerabilities might become more
pronounced, with implications for macrofinancial stability. A particular concern is elevated
public debt levels in several major economies, especially those whose currencies and securities
are systemically important in international financial markets. Fiscal sustainability worries in those
economies could not only put pressure on their own borrowing costs but also tighten broader
financial conditions and amplify financial market volatility. Increased reliance on price-sensitive
investors such as money market funds and leveraged hedge funds heightens dislocation risks and
may necessitate repeated provision of liquidity backstops by central banks, possibly generating
moral hazard and financial dominance concerns. Interactions with geopolitical factors—for
instance, events that would trigger a tightening of measures to combat money laundering and
financing of terrorism—could be an additional amplifier. Foreign aid cuts add to the fiscal
challenges in low-income developing countries. The sovereign-bank nexus could exacerbate the
feedback loop between higher yields on public debt and tighter financial conditions for the
private sector in a broader set of countries.
On the upside, rapid adoption of AI, possibly facilitated by the ongoing surge in AI-related
investment in both hard and soft infrastructure, could significantly improve productivity and
boost medium-term growth prospects sooner rather than later. The fast pace of innovations
might foster creative destruction and revive business dynamism. As a result, global growth may
be lifted by as much as 0.3 percentage points in 2026 and between 0.1 and 0.8 percentage points
per year in the medium term, depending on the speed of adoption and improvements in AI
readiness globally. The benefits could be shared across the economy, provided that
complementary policies to contain the potential impact on energy prices by relaxing power
supply constraints, initiatives to scale up the necessary critical intermediate inputs, and labor
market programs to manage workforce transitions are in place.
More in the near term, tangible progress in trade talks would stand to lower tariffs, enhance
policy predictability, and support global efficiency gains. The gains could be larger if
strengthened cooperation extends to services trade, foreign direct investment, and international
taxation, boosting investment and bolstering public finances.
Current challenges and the possibility of transformative technological changes could open a
window of opportunity for structural reform efforts to gain momentum. Accelerated
implementation of reforms that upskill the existing labor force, reduce barriers to labor mobility,
streamline and rationalize business regulations, enhance competition, and promote innovation
would make it possible to lift the growth potential of economies in a lasting manner while
enhancing their resilience and capacity to adapt.

International Monetary Fund | January 2026 7

WORLD ECONOMIC OUTLOOK UPDATE

Policies Can Foster Stability and Sustainable Growth

Rebuilding fiscal capacity and maintaining public debt sustainability are crucial, especially as
pressing spending needs persist. At a minimum, commitment to credible medium-term fiscal
consolidation is required. Efforts to replenish fiscal buffers should be anchored in realistic
assumptions, including those regarding long-term spending pressures, and sound debt
management practices while seeking to strike the right balance in regard to growth-friendly
adjustment. Countries should aim to bolster fiscal revenues, rationalize expenditures, and
strengthen expenditure efficiency by, among other things, crowding in private investment.
Responses to negative demand shocks should be drawn up without deviating from medium-term
fiscal sustainability objectives. They should leverage automatic stabilizers, applied symmetrically
over the full business cycle to support macroeconomic smoothing in both downturns and
upturns. Any discretionary fiscal interventions must be strictly targeted toward those firms and
households most affected by adverse shocks and include explicit sunset provisions that make the
actions temporary. Offsetting such measures through nonpriority spending reductions elsewhere
or new revenue sources is paramount, particularly where there is limited fiscal space. Broad-
based subsidies and other industrial policy measures can be both costly and disruptive. Even
when appropriate to use, they should be handled with care. To avoid inefficient resource
allocation, particularly given increasingly tighter fiscal constraints, industrial policies must be
precisely targeted to address specific market failures and clearly defined externalities and be
subject to periodic cost-benefit analyses.
Central banks must tailor monetary policy to uphold price stability amid ongoing shifts in the
global economic landscape. Monetary policymakers in countries where inflation is at or close to
target should rely on a forecast-centered approach and, if their countries are experiencing
negative demand shocks, might consider a gradual reduction in policy rates to cushion economic
activity, provided that risks to price stability objectives are contained. By contrast, where
inflation is still above target, a more cautious approach that maintains data dependence is
warranted. In economies experiencing adverse supply shocks, policymakers face complex trade-
offs in balancing the risk of growth slowdown against the risk of persistent inflation. In such
cases, further monetary easing should proceed only with robust evidence of inflation
expectations remaining anchored and inflation returning toward target, with the need to remain
focused on price stability being vital.
Clear, consistent communication from central banks is crucial to navigating this unpredictable
environment. Central bank independence is paramount for macroeconomic stability and
economic growth. Preserving the independence of central banks, both legal and operational,
remains critical for avoiding the risk of fiscal dominance, anchoring inflation expectations, and
enabling them to achieve their mandates.
Disparities in economic activity and price dynamics can complicate macroeconomic policy
decisions across jurisdictions. The ongoing technology-related investment boom is likely to push
real neutral interest rates upward at varying degrees given the differences in its strength across
jurisdictions. This would raise the bar for policy rate cuts, more so in the United States than in

8 International Monetary Fund | January 2026

WORLD ECONOMIC OUTLOOK UPDATE

other economies. Meanwhile, better growth performance and prospects could increase fiscal
room in some cases, such as that of the United States, while possibly reducing it in others
because of the pressure on interest rates. This calls for even more discipline so that any windfalls
are used wisely to put public debt on a decisively downward path where fiscal room opens up
and so that realistic and robust fiscal consolidation is enacted without further delay where fiscal
room shrinks.
Ordinarily, exchange rates should respond flexibly to market signals, thereby facilitating
macroeconomic adjustment. Should significant fluctuations in foreign exchange or risk
premiums arise, the IMF’s Integrated Policy Framework offers guidance for tailored policy
responses. In select cases, alongside appropriate monetary and fiscal policy stances, temporary
foreign exchange interventions or capital flow management tools may be warranted.
With heightened uncertainty and fragilities in asset valuations, strong prudential oversight is
needed to preserve financial stability. In periods of sustained uncertainty such as the current one,
expanded use of scenario analysis can enhance macroeconomic policymaking. Readiness to
deploy contingency plans for diverse risks ensures resilience should those risks materialize.
To stabilize expectations and encourage investment in a broader set of sectors, countries should
make reducing policy-driven uncertainty a priority. They should establish and adhere to
transparent and coherent trade policy frameworks, aided by pragmatic cooperation. This
involves advancing multilateral efforts concerning key global commons, updating international
regulations where feasible, and exploring regional or plurilateral solutions where appropriate.
Bilateral dialogues should not adversely impact third-party nations. Efforts to ease trade frictions
and lower barriers to trade and investment should be aligned with those aiming to address
excessive external imbalances resulting from domestic policy decisions (see the 2025 External
Sector Report). Achieving lasting resolutions requires reaching a common understanding of
underlying distortions and taking action to address them.
Beyond the navigation of near-term trade-offs and challenges, elevating medium-term growth
prospects remains the most effective strategy for resolving macroeconomic dilemmas. Structural
reforms targeting labor markets, education, regulatory frameworks, and competition will drive
productivity, potential output, and job creation. Moreover, harnessing technological progress—
through digital transformation, AI adoption, and investment in renewables and energy-efficient
systems, among other possibilities—can accelerate productivity gains and expand growth
potential. These efforts should not jeopardize but rather be aligned with a rebalancing of the
global economy, which is a crucial element of sustainability. Weaving in growth-enhancing
measures together with efforts to fortify the EU single market, to chart a credible fiscal
consolidation plan to put US public debt on a decisively downward path, and to advance China’s
reforms to strengthen the social protection system and scale back unwarranted industrial policy
support would help diversify the sources of global growth.

International Monetary Fund | January 2026 9

 WORLD ECONOMIC OUTLOOK UPDATE

Table 1. Overview of the World Economic Outlook Projections

(Percent change, unless noted otherwise)
Year over Year
Difference from October 2025 Q4 over Q4 2/
Estimate Projections WEO Projections 1/ Estimate Projections
2024 2025 2026 2027 2026 2027 2025 2026 2027
World Output 3.3 3.3 3.3 3.2 0.2 0.0 2.9 3.2 3.2
Advanced Economies 1.8 1.7 1.8 1.7 0.2 0.0 1.4 1.9 1.7
United States 2.8 2.1 2.4 2.0 0.3 –0.1 2.2 2.1 2.1
Euro Area 3/ 0.9 1.4 1.3 1.4 0.1 0.0 0.9 1.7 1.3
Germany –0.5 0.2 1.1 1.5 0.2 0.0 0.4 1.0 1.5
France 1.1 0.8 1.0 1.2 0.1 0.0 1.0 0.9 1.3
Italy 0.7 0.5 0.7 0.7 –0.1 0.1 0.7 0.7 0.7
Spain 3.5 2.9 2.3 1.9 0.3 0.2 2.7 2.0 1.9
Japan –0.2 1.1 0.7 0.6 0.1 0.0 0.2 1.5 0.4
United Kingdom 1.1 1.4 1.3 1.5 0.0 0.0 1.1 1.4 1.9
Canada 2.0 1.6 1.6 1.9 0.1 0.0 0.7 2.3 1.5
Other Advanced Economies 4/ 2.3 1.8 2.0 2.1 0.0 0.0 1.3 2.8 2.7
Emerging Market and Developing Economies 4.3 4.4 4.2 4.1 0.2 –0.1 4.0 4.3 4.2
Emerging and Developing Asia 5.3 5.4 5.0 4.8 0.3 0.0 4.9 5.0 4.8
China 5.0 5.0 4.5 4.0 0.3 –0.2 4.4 4.5 4.1
India 5/ 6.5 7.3 6.4 6.4 0.2 0.0 6.2 6.5 6.5
Emerging and Developing Europe 3.5 2.0 2.3 2.4 0.1 0.0 1.6 2.1 2.4
Russia 4.3 0.6 0.8 1.0 –0.2 –0.1 –0.5 0.6 1.1
Latin America and the Caribbean 2.4 2.4 2.2 2.7 –0.1 0.1 1.9 2.8 2.4
Brazil 3.4 2.5 1.6 2.3 –0.3 0.1 2.2 2.3 2.2
Mexico 1.4 0.6 1.5 2.1 0.0 0.1 0.7 2.2 2.1
Middle East and Central Asia 2.7 3.7 3.9 4.0 0.1 0.2 … … …
Saudi Arabia 2.6 4.3 4.5 3.6 0.5 0.4 4.3 4.5 3.6
Sub-Saharan Africa 4.1 4.4 4.6 4.6 0.2 0.1 … … …
Nigeria 4.1 4.2 4.4 4.1 0.2 0.1 3.9 4.3 6.5
South Africa 0.5 1.3 1.4 1.5 0.2 0.0 1.8 1.2 1.7
Memorandum
World Growth Based on Market Exchange Rates 2.8 2.8 2.8 2.6 0.2 –0.1 2.4 2.7 2.6
European Union 1.2 1.5 1.5 1.6 0.1 0.0 1.3 1.5 1.6
ASEAN-5 6/ 4.6 4.2 4.2 4.4 0.1 0.1 4.1 4.2 4.6
Middle East and North Africa 2.2 3.4 3.9 4.0 0.2 0.3 … … …
Emerging Market and Middle-Income Economies 4.4 4.3 4.1 4.1 0.2 0.0 4.0 4.2 4.1
Low-Income Developing Countries 4.2 4.6 5.1 5.1 0.1 –0.2 … … …
World Trade Volume (goods and services) 7/ 3.6 4.1 2.6 3.1 0.3 0.0 … … …
Advanced Economies 2.0 3.0 1.9 2.4 0.4 0.2 … … …
Emerging Market and Developing Economies 6.3 5.7 3.6 4.4 0.0 0.0 … … …
Commodity Prices
Oil 8/ –1.8 –14.2 –8.5 0.1 –4.0 0.3 –14.2 –1.4 0.9
Nonfuel (average based on world commodity import weights) 3.7 9.4 7.5 0.9 3.4 0.3 13.3 0.8 0.6
World Consumer Prices 9/ 5.8 4.1 3.8 3.4 0.1 0.0 3.4 3.1 3.0
Advanced Economies 10/ 2.6 2.5 2.2 2.1 0.0 0.0 2.5 2.1 2.1
Emerging Market and Developing Economies 9/ 7.9 5.2 4.8 4.3 0.1 0.1 4.2 3.9 3.6
Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during October 21–November 18, 2025. Economies are listed on the basis of economic size. The aggregated quarterly data are seasonally
adjusted. "..." indicates that data are not available or not applicable. WEO = World Economic Outlook.
1/ Difference based on rounded figures for the current and October 2025 WEO forecasts. Countries for which forecasts have been updated relative to October 2025 WEO forecasts account for approximately 90 percent of world GDP
measured at purchasing-power-parity weights.
2/ For World Output (Emerging Market and Developing Economies), the quarterly estimates and projections account for approximately 90 percent (80 percent) of annual world (emerging market and developing economies) output at
purchasing-power-parity weights.
3/ Quarterly GDP growth forecasts for euro area are based on six economies (France, Germany, Ireland, Italy, the Netherlands, and Spain) which account for approximately 85 percent of euro area GDP.
4/ Excludes the Group of Seven (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and euro area countries. The projection for 2027 Q4 over Q4 GDP growth accounts for approximately 44 percent of group
output at purchasing-power-parity weights.
5/ For India, data and projections are presented on a fiscal year (FY) basis, with FY 2024/25 (starting in April 2024) shown in the 2024 column. India's growth projections are 6.3 percent for 2026 and 6.5 percent for 2027 based on
calendar year.
6/ Indonesia, Malaysia, Philippines, Singapore, Thailand. ASEAN = Association of Southeast Asian Nations.
7/ Simple average of growth rates for export and import volumes (goods and services).
8/ Simple average of prices of UK Brent, Dubai Fateh, and West Texas Intermediate crude oil. The average assumed price of oil in US dollars a barrel, based on futures markets (as of November 20, 2025), is $62.13 for 2026 and
$62.17 for 2027.
9/ Excludes Venezuela.
10/ The assumed inflation rate for the euro area is 1.9 percent for 2026 and 2.0 percent for 2027, that for Japan is 2.3 percent for 2026 and 2.1 percent for 2027, and that for the United States is 2.4 percent for 2026 and 2.2 percent
for 2027.

10 International Monetary Fund | January 2026

JAN
2026 Box 1. GLOBAL FINANCIAL STABILITY UPDATE
Global financial conditions have remained broadly Figure 1.1. Financial Conditions Index
accommodative since the October 2025 Global Financial (Number of standard deviations over long-term
averages)
Stability Report (GFSR) (Figure 1.1). Investor sentiment
continues to support high equity prices and historically narrow United States
Other AEs
Euro area
China
EMs excluding China
credit spreads, driven by expectations of further monetary policy
1.0
easing. Favorable financing conditions and subdued currency Oct. 2025
GFSR
volatility have supported portfolio flows to emerging markets, 0.5

with record international sovereign bond issuance and increased

0.0
access for many lower-rated sovereigns, alongside steady inflows
to local currency debt markets. –0.5

Increased equity market volatility in November reflected –1.0

market concerns about future returns in the artificial
intelligence (AI) sector. AI companies now account for a –1.5

22:Q3
23:Q1
23:Q3
24:Q1
24:Q3
25:Q1
25:Q3
2022:Q1

Oct. 10
Oct. 20
Oct. 30
Nov. 9
Nov. 17
sizable share of stock market capitalization and drive much of
corporate capital expenditure growth. Market participants are
Sources: Bloomberg Finance L.P.; and IMF staff calculations.
increasingly focused on whether these firms can deliver sustained Note: The IMF Financial Conditions Index (FCI) is designed
to capture the pricing of risk. It incorporates various pricing
AI revenue acceleration to justify lofty valuations. Rising reliance indicators, including real house prices. Balance sheet or
credit growth metrics are not included. A lower (higher) FCI
on debt financing, reflected in high debt ratios and widening score implies easier (tighter) financial conditions. The shaded
area shows daily FCIs estimated using available high-
credit default spreads of some firms, raises additional concerns. frequency market data. AEs = advanced economies; EMs =
emerging markets; GFSR = Global Financial Stability Report.
In addition, circular investment and procurement arrangements,
in which firms invest in each other while securing future orders, among large AI players create opacity
and concentration risk. These practices make ownership structures and valuations harder to assess.
Heavy issuance and evolving investor appetite are pushing sovereign debt toward shorter
maturities, reshaping market dynamics in major economies. Global sovereign debt is projected to
exceed 100 percent of GDP by the decade’s end. Lower policy rates have helped steady longer-term
yields, even as term premiums rise amid heavy issuance and shifting investor appetite away from long-
duration assets. Dutch pension funds are shortening portfolio durations, and traditional UK buyers,
such as pension funds, are ceding ground to hedge funds. In both the UK and the US, issuance now tilts
toward shorter maturities. Meanwhile, short-term rates have been rising, with bouts of volatility,
prompting periodic use of central bank liquidity and raising concerns about market functioning.
Recent corporate defaults call attention to underwriting standards and transparency in credit
markets. Investors viewed the failures of Tricolor Holdings and First Brands as isolated, and other
struggling firms have so far avoided defaults through restructurings with lenders, often at the cost of
rating downgrades. Nevertheless, the defaults of these two companies have exposed several important
weaknesses: opaque financing structures, weak governance, and lax underwriting standards. These issues
have become more common with the rapid growth of nonbank lenders, especially private credit.
Vulnerabilities in this sector could become more pronounced if market conditions tighten or investor
risk appetite wanes.

International Monetary Fund | January 2026 11

 STRICTLY CONFIDENTIAL
JAN
JAN
2026
2026
WORLD ECONOMIC
WORLD ECONOMIC OUTLOOK
OUTLOOK UPDATE:
UPDATE: Annex
Annex

Annex Table 1. Selected Economies: Real GDP Growth

(Percent change)
Difference from October 2025
Estimate Projections WEO Projections 1/
2024 2025 2026 2027 2026 2027

Argentina –1.3 4.5 4.0 4.0 0.0 0.0

Australia 1.0 1.9 2.1 2.2 0.0 0.0
Brazil 3.4 2.5 1.6 2.3 –0.3 0.1
Canada 2.0 1.6 1.6 1.9 0.1 0.0
China 5.0 5.0 4.5 4.0 0.3 –0.2
Egypt 2/ 2.4 4.4 4.7 5.4 0.2 0.7
France 1.1 0.8 1.0 1.2 0.1 0.0
Germany –0.5 0.2 1.1 1.5 0.2 0.0
India 2/ 6.5 7.3 6.4 6.4 0.2 0.0
Indonesia 5.0 5.0 5.1 5.1 0.2 0.1
Iran 2/ 3.7 0.3 1.1 1.6 0.0 0.0
Italy 0.7 0.5 0.7 0.7 –0.1 0.1
Japan –0.2 1.1 0.7 0.6 0.1 0.0
Kazakhstan 5.0 6.2 4.4 4.2 –0.4 0.0
Korea 2.0 1.0 1.9 2.1 0.1 –0.1
Malaysia 5.1 4.6 4.3 4.3 0.3 0.3
Mexico 1.4 0.6 1.5 2.1 0.0 0.1
The Netherlands 1.1 1.7 1.2 1.4 0.0 0.0
Nigeria 4.1 4.2 4.4 4.1 0.2 0.1
Pakistan 2/ 2.6 3.0 3.2 4.1 –0.4 0.0
Philippines 5.7 5.1 5.6 5.8 –0.1 –0.2
Poland 3.0 3.3 3.5 2.7 0.4 –0.2
Russia 4.3 0.6 0.8 1.0 –0.2 –0.1
Saudi Arabia 2.6 4.3 4.5 3.6 0.5 0.4
South Africa 0.5 1.3 1.4 1.5 0.2 0.0
Spain 3.5 2.9 2.3 1.9 0.3 0.2
Thailand 2.5 2.1 1.6 2.2 0.0 0.0
Türkiye 3.3 4.1 4.2 4.1 0.5 0.4
United Kingdom 1.1 1.4 1.3 1.5 0.0 0.0
United States 2.8 2.1 2.4 2.0 0.3 –0.1

Source: IMF staff calculations.

Note: The selected economies account for approximately 83 percent of world output. WEO = World Economic Outlook.
1/ Difference based on rounded figures for the current and October 2025 WEO forecasts.
2/ Data and forecasts are presented on a fiscal year basis.

12 International Monetary Fund | January 2026

WEO Update © 2026 ISBN: 9798229032339