The International Monetary Fund (IMF) has issued a warning about the slowing economic growth in Europe, attributing it to rising energy costs and persistent inflation driven by geopolitical conflicts. According to the IMF’s latest World Economic Outlook, released on October 13, eurozone growth is forecast at 1.1% in 2026 and 1.2% in 2027, with inflation rates expected to remain above the European Central Bank’s target.
The report highlights that high energy prices, exacerbated by Russia’s ongoing war in Ukraine and tensions in the Middle East, are prolonging inflation within the eurozone. Inflation is projected to reach 3.1% in 2026 before easing slightly to 2.8% in 2027, still above the ECB’s 2% target. This economic environment could dampen household spending and business investment, as consumer confidence remains weak.
In addition to inflationary pressures, the IMF warns that below-normal gas storage levels in parts of Europe could lead to further price surges during the winter. This could compel the European Central Bank to uphold a restrictive monetary policy to manage inflation, which is not expected to align with the ECB’s target until mid-2028.
The economic outlook varies significantly across major European countries. Germany is expected to grow by 1.3% in 2026, while Spain could see a stronger expansion at 2.5%. Conversely, France faces a weaker growth forecast of just 0.4%. The United Kingdom’s growth is anticipated to improve to 1.3% in 2026, but is likely to decelerate to 1.2% in 2027 due to the impact of rising energy prices and borrowing costs.
Away from Europe, the IMF also addressed challenges in the Middle East, where Gulf oil exporters might experience sharp declines in production and exports due to regional conflicts, with recovery not expected until 2027. Oil-importing countries in the region may benefit somewhat from domestic demand, remittances, and tourism, although disruptions to shipping routes pose a threat to regional trade and economic activities.
On a global scale, the IMF noted that trade in artificial intelligence-related goods has become a significant growth driver, increasing by 29% from 2023 to 2025. However, the potential economic benefits hinge on whether investment in AI results in real productivity gains. The IMF cautions that if expectations for profits weaken, financial market disruptions could pose additional risks to global growth.