Global Economic Resilience Is Under Strain, Demanding Decisive Policy Action

IMF Blog, October 13, 2026

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The blog was authored by Silvana Tenreyro and was published on October 13, 2026.
It summarizes findings from the October 2026 World Economic Outlook: “Resilience under Strain, Urgent Choices.”
Core message: countries must move from coping to rebuilding by restoring fiscal space and supply-side resilience to enhance sustainable growth.

Global activity is projected to grow at 3.1 percent in 2026 and 3.4 percent in 2027.
Global headline inflation is forecast to rise to 4.7 percent this year and to fall back to 4.1 percent next year.
Core inflation is projected at 3.9 and 3.7 percent for 2026 and 2027, respectively.

Labor markets remained unexpectedly strong.
Financial systems broadly withstood shocks and the sharpest monetary tightening in almost half a century.
Two main adjustment margins helped cushion shocks:
- Rerouting of energy supplies, increased energy production in other countries, inventory drawdowns, substitution to other energy sources (including renewables), and higher energy efficiency.
- An artificial intelligence-driven investment boom that boosted global activity and supported international trade; investment rose in anticipation of higher expected returns and real incomes (reflected in stock valuations).

Resilience is under strain without replenished policy buffers and increased supply capacity.
Specific risks identified:
- Dwindling energy inventories could amplify transmission of geopolitical shocks to energy prices.
- 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 is concentrating risks, making the global expansion heavily reliant on a small number of firms, sectors, and economies.
- Resilience has been uneven, producing divergent outcomes by exposure to the war and the AI boom.
Policy constraints:
- Borrowing costs have risen sharply in major advanced economies owing to both supply- and demand-driven price pressures, along with fiscal risks.
- Public debt is high in many economies, and fiscal buffers have been used to absorb shocks.
- The interaction of higher financing costs with elevated debt levels creates vulnerability.

The analysis considers a risk scenario where higher commodity prices and concerns about the fiscal outlook lead to a reassessment of public borrowing risks.
That reassessment causes an increase in the term premium and inflation expectations.
In that scenario:
- Global growth in 2027 would be materially lower than in the baseline projections.
- Inflation would be significantly higher.
- The shock would have tangible spillovers for emerging markets and developing economies.
Keeping public debt on a durably sustainable path can prevent such a scenario.

Fiscal policy:
- Fiscal policy must be restrained and help contain demand pressures amid heightened inflationary risks.
- The increase in borrowing costs and implications for fiscal sustainability make fiscal adjustment urgent.
- Keeping public debt on a durably sustainable path is emphasized.
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 manner, 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.
- Central bank independence remains vital.
Structural and international measures:
- Safeguard financial stability and support private sector dynamism.
- Strengthen fiscal and supply-side resilience to support medium-term growth and lift productive potential.
- International cooperation is indispensable: transparent and predictable trade rules, cooperation on energy security and critical supply chains, and cooperation on rapidly changing technologies including artificial intelligence to harness gains and manage risks.