The International Monetary Fund (IMF) has warned of slowing economic growth in Europe, projecting eurozone expansion rates of 1.1% in 2026 and 1.2% in 2027. These forecasts come amid rising energy costs and persistent inflation, influenced by geopolitical tensions such as Russia’s war in Ukraine and the conflict in the Middle East.
According to the IMF’s World Economic Outlook released on October 13, the forecast for 2026 represents a 0.2 percentage point increase from its July estimate but still remains below the 1.2% growth recorded in 2025. Eurozone inflation is predicted to reach 3.1% in 2026 before slightly easing to 2.8% in 2027, remaining above the European Central Bank’s (ECB) target of 2%.
High energy prices and weak consumer confidence are expected to weigh on household spending and business investment. Additionally, below-normal gas storage levels in parts of Europe could further expose consumers to price increases during the winter months. The IMF suggests that persistent inflation might compel the ECB to maintain a restrictive monetary policy, with a return to the 2% inflation target anticipated around mid-2028.
Economic prospects differ across major European nations. Germany’s growth is projected at 1.3% in 2026, while Spain is expected to grow by 2.5%. In contrast, France faces a weaker outlook with a forecast of 0.4% growth. The United Kingdom is projected to grow by 1.3% in 2026, though growth is expected to slow to 1.2% in 2027 due to rising energy prices and borrowing costs.
The IMF also highlighted risks for Middle Eastern economies, with Gulf oil exporters potentially facing sharp contractions in production and exports before recovering in 2027, contingent on the conflict’s developments. Oil-importing countries in the region may receive some support from domestic demand, remittances, and tourism, although disruptions to shipping routes could threaten trade and economic activity.
On a global scale, the IMF noted that artificial intelligence-related goods have become a significant driver of trade, with a 29% increase in trade for these products between 2023 and 2025, compared to an 8.3% increase in overall global trade. However, the economic benefits of the AI boom depend on whether investments translate into genuine productivity gains. Any weakening in expectations for future profits and corrections in asset prices could pose additional risks to global growth.