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The “surprisingly resilient” global economy is at risk of being disrupted by a sharp reversal in the AI boom, the IMF warned on Monday, as world leaders prepared for talks in the Swiss resort of Davos.
Risks to global economic expansion were “tilted to the downside”, the fund said in an update to its World Economic Outlook, arguing that growth was reliant on a narrow range of drivers, notably the US technology sector and the associated equity boom.
Nonetheless, it predicted US growth would strongly outpace the rest of the G7 this year, forecasting an expansion of 2.4 per cent in 2026 and 2 per cent in 2027. Tech investment had surged to its highest share of US economic output since 2001, helping drive growth, the IMF found.
“There is a risk of a correction, a market correction, if expectations about AI gains in productivity and profitability are not realised,” said Pierre-Olivier Gourinchas, IMF chief economist.
“We’re not yet at the levels of market frothiness, if you want, that we saw in the dotcom period,” he added. “But nevertheless there are reasons to be somewhat concerned.”
Donald Trump will travel to the Swiss resort of Davos this week for the World Economic Forum. The gathering is expected to mingle bullish assessments of US AI investments with anxiety about stock market valuations and threats to institutions, including the US Federal Reserve and Nato.
The discussions are set to be dominated by the US president’s threat of hitting European countries with 10 per cent tariffs unless they agree to support him acquiring Greenland.
The IMF outlook found that global economic expansion had been firmer than expected despite Trump-induced trade tensions and a widening array of geopolitical hazards. The fund boosted its outlook for 2026 global growth from 3.1 per cent to 3.3 per cent, with only a slight slowdown in 2027 to 3.2 per cent.
A renewed escalation in the trade conflict could again unsettle growth prospects, however, the IMF cautioned. “Trade tensions could flare up, prolonging uncertainty and weighing more heavily on activity.”
China will expand 4.5 per cent in 2026, an increase of 0.3 percentage points from the IMF’s October projections, followed by 4 per cent growth in 2027, according to the outlook.
Among the G7 nations, Canada will have the second-strongest expansion this year after the US at 1.6 per cent. Canadian growth is forecast to pick up to 1.9 per cent in 2027.
The IMF left its UK forecasts for 2026 and 2027 unchanged, with growth of 1.3 per cent this year and 1.5 per cent in 2027. German GDP will expand by 1.1 per cent this year and 1.5 per cent next, the IMF said.
Global growth, the IMF said, was founded on the “narrow base” of an AI investment boom in the US. If expectations of AI-driven productivity advances proved overly optimistic, there was a risk of a “sharp drop” in investment and associated stock market reversal, the IMF warned.
A drop in AI investment coupled with a “moderate correction” in tech stock valuations could knock global growth by about 0.4 percentage points this year, according to the fund.
Gourinchas warned that because tech groups’ market capitalisation as a share of output was now “much bigger” than during the dotcom bubble 25 years ago, even a small reversal could “have a big impact on people’s wealth relative to their income”.
He added that AI hyperscalers’ increasing reliance on debt to fund their investment spree was also a cause for concern. “When you see leverage rising, you kind of get a little bit worried.”
A sharp stock market correction in the US could also trigger “sizeable wealth losses” outside the US, the IMF added, knocking global consumption.
There was an alternative optimistic scenario that productivity enhancements from AI started to materialise sooner than the IMF expected, however. If this came true, global growth could be boosted by 0.3 percentage points in 2026 and between 0.1 and 0.8 percentage points a year in the medium term, the fund added.
The IMF emphasised the importance of central bank independence after the announcement of a criminal probe into US Federal Reserve chair Jay Powell triggered widespread fallout last week.
“Central bank independence is absolutely paramount when it comes to maintaining macroeconomic stability, financial stability and providing an anchor for sustainable growth,” said Gourinchas.
“In the case of the US Federal Reserve, this is . . . even more important given the dominant position of the US financial system in the global economy [and] given the importance of the US dollar for the international monetary system.”