The International Monetary Fund (IMF) has issued a warning that economic growth in the eurozone is projected to slow due to rising energy costs and prolonged inflation, influenced by geopolitical tensions such as Russia’s invasion of Ukraine and the conflict in the Middle East. According to the IMF’s World Economic Outlook released on October 13, eurozone growth is forecasted at 1.1% for 2026 and 1.2% for 2027, a modest increase from previous estimates but still trailing the growth rate of 1.2% recorded in 2025.
The report highlights that eurozone inflation is expected to hit 3.1% in 2026 before easing to 2.8% in 2027, remaining above the European Central Bank’s target of 2%. Persistent high energy prices and weak consumer confidence are factors that could continue to impact household spending and business investment adversely.
Moreover, the IMF cautioned that parts of Europe with below-normal gas storage levels might face further price hikes during winter, potentially necessitating the European Central Bank to maintain tight monetary policy. The report suggests that underlying inflation could stabilize around the 2% target by mid-2028.
Economic forecasts vary across major European countries. Germany is anticipated to grow by 1.3% in 2026, while Spain’s growth is expected to reach 2.5%. Conversely, France faces a more subdued outlook with a growth forecast of 0.4%. The United Kingdom’s growth projection has been adjusted to 1.3% for 2026, with a slowdown to 1.2% in 2027 as higher energy prices and borrowing costs take a toll on consumption and investment.
The IMF also highlighted risks facing Middle Eastern economies, noting that Gulf oil exporters could experience significant production and export contractions before a recovery in 2027, contingent on the development of regional conflicts. Oil-importing countries may benefit from domestic demand, remittances, and tourism, yet disruptions in shipping routes pose a threat to regional trade and economic activity.
Additionally, the IMF noted an increasing role for artificial intelligence (AI)-related goods in driving global trade. Trade in AI products grew by 29% from 2023 to 2025, compared to an 8.3% overall growth in global trade during the same period. However, the report warns that the economic benefits of the AI boom depend on whether investments lead to real productivity gains, as weakened profit expectations and asset price adjustments could disrupt financial markets, imposing further risks to global growth.