IMF cautions on AI, raises India FY26 forecast

correction, spreading from AI-linked companies to other segments and eroding household wealth.

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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,” it warned.Meanwhile, India’s inflation may return to near target levels after a marked decline in 2025, the IMF noted. It also upgraded its estimate of global growth for 2025 and 2026 to 3.3%, from 3.2% and 3.1% respectively in October.

The multilateral agency also upgraded its estimate of global economic growth for calendar years 2025 and 2026 to 3.3%, from 3.2% and 3.1% respectively in October. For 2027, it forecast 3.2% growth. However, it warned that overoptimism about AI, alongside rising trade and geopolitical tensions, could trigger a sharp market crash and disrupt the global economy.

The IMF attributed the steady global growth thus far to a balance of two opposing forces: headwinds from volatile trade policies and tailwinds from a surge in AI and technology investments across North America and Asia. This was further bolstered by supportive fiscal and monetary measures, alongside the adaptability of the private sector in navigating these shifts, it said.

Global headline inflation is expected to decline from an estimated 4.1% in 2025 to 3.8% in 2026 and 3.4% in 2027, suggesting lower energy costs and softer demand. The IMF’s inflation projections are broadly unchanged from those forecast in October.