IMF Warns Trade Tensions Could Weigh on Global Growth, Even as Outlook Improves

By benadeta mwaura - Reporter

Kenya, January 19 2026 - The International Monetary Fund (IMF) has raised its global growth forecast for 2026 but cautioned that trade tensions and other risks could undermine the world economy, according to its latest World Economic Outlook update.

In a report published Monday, the IMF projected that the global economy will expand by about 3.3 % in 2026, a modest increase from its October forecast and on par with 2025, thanks in part to strong technology investment and resilient demand. Artificial intelligence (AI)-related investment, particularly in the United States, Europe and Asia, has provided unexpected upside to growth prospects, the IMF said.

However, the global lender emphasised that downside risks remain significant, including the potential for renewed or escalating trade tensions, which could disrupt supply chains, dampen investment and introduce greater uncertainty into economic decision-making.

The IMF noted that geopolitical uncertainty, including volatile trade policy developments, could weigh more heavily on global activity if they flare up again. IMF Chief Economist Pierre-Olivier Gourinchas told the BBC that while the global economy has exhibited resilience in absorbing recent tariff shocks and trade disruptions, the risks associated with prolonged or expanded trade conflicts still pose a threat to business confidence and economic momentum.

In its assessment, the IMF also highlighted the importance of central bank independence as a key element in sustaining macroeconomic stability and supporting growth, warning that weakening policy frameworks could exacerbate market volatility. The IMF’s updated outlook reflects a mix of resilience and vulnerability. While global growth forecasts were revised upward amid robust tech investment and easing tariff pressures, the Fund underscored that if expectations around AI-driven productivity gains fall short or trade disruptions intensify, the economy could face a notable downturn.

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Even a mild market correction sparked by over-valued tech assets could dampen consumption and business investment, the IMF said. Trade tensions, including tariff threats and geopolitical disputes, can slow global economic activity, disrupt supply chains and reduce business confidence, all of which can slow investment and consumption.

AI-linked growth provides a buffer but also introduces risk if productivity gains fail to materialise as expected. Policy uncertainty, especially around central bank independence and trade policy, adds layers of vulnerability that could ripple through markets and economies worldwide.

The IMF’s warning comes amid rising geopolitical tensions in early 2026, including tariff threats involving U.S.–Europe relations, which have stirred market volatility and drawn scrutiny from investors and policymakers alike.