## FOREWORD ## Source details **Canonical URL:** [FOREWORD](https://www.imf.org/-/media/files/publications/weo/2026/october/english/foreword.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2026/october/english/foreword.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2026/october/english/foreword.pdf.json) --- ### Overview - The global economy has been subjected to "an exceptional sequence of events" in less than seven years, including the pandemic, wars in Ukraine and the Middle East, and significant changes in trade barriers and trading relations. - Global activity is projected to grow at 3.1 percent in 2026 and 3.4 percent in 2027. - Global headline inflation is projected to rise to 4.7 percent this year and to fall back to 4.1 percent in 2027; the pass-through to core inflation is expected to be limited. ### Factors behind recent resilience - Labor markets have remained "unexpectedly strong"; financial systems have "broadly withstood the shocks and the sharpest monetary tightening in half a century"; inflation has receded from peaks in many economies, although it "remains persistent in some cases." - Two main sets of factors helped cushion shocks: - Energy market adjustments: rerouting of energy supplies; increased energy production in other countries; inventory drawdowns; substitution to other sources of energy, including renewables; and higher energy efficiency. Without these margins of adjustment, "the oil disruption alone would have significantly reduced global growth in 2026." - Technology-led investment: an investment boom triggered by artificial intelligence that has provided impetus to global activity and supported international trade; investment has continued to rise in anticipation of higher expected returns and real incomes (reflected in stock valuations). ### Risks, vulnerabilities, and scenarios - Resilience is under strain and uneven across economies, varying with exposure to the war and the AI boom. - Key vulnerabilities and risks: - Dwindling inventories in energy markets and the prospect that additional geopolitical shocks could transmit rapidly through prices and supply disruptions. - Other commodity markets face risks; low-income countries and households are "especially vulnerable" to higher food prices from transport disruptions, higher fertilizer costs, export restrictions, and extreme weather events. - Technology-related investment concentrates risks: gains clustered in a small number of firms, sectors, and economies, making global expansion heavily reliant on a narrow set of technological and financial conditions. - Policy constraints: sharply higher borrowing costs in major advanced economies; high public debt in many economies; depleted fiscal buffers used to absorb repeated shocks. - Scenario highlighted in Chapter 1: - A risk scenario with a loss of fiscal and monetary credibility in major economies, in addition to commodity price increases, would result in global growth in 2027 being materially lower than the baseline projections and inflation being significantly higher, with tangible spillovers for emerging market and developing economies. ### Policy recommendations and guidance - Fiscal policy: - Fiscal policy "must be restrained" and help contain demand pressures amid heightened inflationary risks. - Public debt levels need to be put back on a "durably sustainable path." - Chapter 2 emphasizes that, in cost-of-living crises, measures that preserve price signals and rely primarily on temporary and targeted income support for the most vulnerable households are both effective and efficient. - Chapter 3 notes that corporate income tax policy can help from the revenue side but has important domestic and cross-border implications: debt-financed tax cuts may support activity in the short term but can crowd out investment elsewhere, while reductions in tax revenues can constrain public investment and productive capacity over time. - Monetary policy: - Monetary policy "should remain firmly focused on price stability, in line with central banks’ mandates." - The policy stance should be sufficiently restrictive to return inflation to target in a timely fashion, preventing second-round effects. - Where commodity price increases and technology-related investment (or other factors) add to persistent inflationary pressures, monetary policy "will need to tighten further." - Starting levels of inflation, labor market tightness, and technology and commodity exposures remain key policy guideposts; the appropriate stance will differ across countries. - Central bank independence is "instrumental" in achieving price stability. ### Supply-side resilience strategy - A comprehensive medium-term strategy should rest on three mutually reinforcing pillars: - Technological diversification: greater investment in critical technologies and inputs for which substitutes are limited; energy cited as a clear example; diversification includes continuing to expand sources of energy, including renewables. - Trade diversification: more diversified trade relationships to reduce exposure to individual input suppliers and buyers and lower volatility; reshoring is "not a viable solution for most countries" because it is often inefficient and can increase concentration of risks domestically. - Stronger supply buffers in critical sectors: energy, water, food, and other essential inputs. - A well-designed strategy must encompass both public and private sectors, bolstered by structural reforms to boost entrepreneurship and business dynamism, aiming to reduce exposure ex ante, limit abrupt and costly adjustments, and strengthen growth capacity. ### International cooperation and closing priorities - International cooperation is "indispensable": transparent and predictable trade rules, cooperation on energy security and critical supply chains, and coordinated approaches to harness and manage the risks of artificial intelligence. - The task ahead is framed as moving "from coping to rebuilding": rebuilding supply-side resilience, restoring fiscal space, lifting growth potential, and ensuring that the next decade is defined by growth and shared prosperity. --- _Source: https://www.imf.org/-/media/files/publications/weo/2026/october/english/foreword.pdf_