Global economy dancing to 2 discordant tunes — Iran war and AI boom, says IMF

The global economy has taken the seismic shock of the Iran war on the chin and it’s still standing, not least because the accelerating AI boom has helped absorb the blow.

That, in a nutshell, is the prognosis of the International Monetary Fund (IMF) in its latest prognosis for the economy of this planet.

In its latest World Economic Outlook – a thrice-yearly rendering of forecasts and analysis that can turn on a dime in this whiplash era of accelerating change and uncertainty – the IMF pointedly referred to both as “shocks”, with one braking economic growth and the other putting the pedal to the metal despite higher petrol prices.

“Global economic activity and the outlook are being shaped by two major forces, pushing in opposite directions with asymmetric effects across countries,” the Washington-based lender said.

“First is the negative supply shock induced by the war in the Middle East. Second is the ongoing positive technology shock manifesting in accelerated momentum of the global technology cycle, in no small part driven by advances in and deployment of artificial intelligence (AI) tools.”

There is a delicious irony in the transparent human stupidity of US President Donald Trump pulling the global economy in a different direction from intelligence that is artificial. But that is the crazy planet we currently inhabit.

For the IMF, the two key indicators it focuses on in such reports are growth and inflation – which, given the Fund’s influence in the global financial system, explains why markets and policymakers take them seriously.

“Global growth is projected to be 3.0% in 2026 and 3.4% in 2027, down from the average of 3.5% observed in 2024-25 and broadly unchanged on a cumulative basis compared with the forecasts in the April 2026 World Economic Outlook (WEO),” the IMF said.

“The modest slowdown reflects the effects of the war in the Middle East being partly offset by accelerated demand-driven momentum in the global technology cycle thanks to advances in artificial intelligence (AI) and its adoption.”

On the other big front, global headline inflation is expected to quicken to 4.7% in 2026 – largely because of the closures of the Strait of Hormuz, which has gone from a trivia question to a household term – from 4.1% last year and then slow to 3.9% in 2027.

In global terms, South Africa is faring pretty well with regards to inflation, and a lot of the credit for that goes to the Reserve Bank and its unrelenting focus under the stewardship of governor Lesetja Kganyago on taming this beast.

South African inflation, currently running at 4.5%, was forecast by the Reserve Bank in its last Monetary Policy Committee (MPC) statement to average 4.4% this year and 3.7% in 2027.

But on the growth stage, South Africa remains a woeful laggard. The IMF now sees South Africa’s economy expanding 1.1% this year, 0.1% more than its previous forecast and 1.3% in 2027.

The uneven impact of AI

South Africa, as a net importer of oil which is not yet a major player in the AI value chain, is extremely exposed to the fallout from the Iran war – which heated up again this week – while not reaping all the benefits of the technical shock that accrue elsewhere.

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Korea, by contrast, is the star on this stage.

“Korea, despite its heavy reliance on imported energy from the Middle East, surprised with a 7.5% growth rate (in the first quarter of this year), more than four times the 1.8% projected in April, powered primarily by a semiconductor and AI-hardware export boom,” the IMF said.

This speaks to the uneven impact of the AI tech shock on economies.

“The AI-driven global technology upswing,” the IMF notes, has been “largely absent” from sub-Saharan Africa – a trend that needs to change.

It’s also the case that the microchips needed for the AI revolution require many of the metals and critical minerals that are found in Africa. But the continent should not be seen as simply a source of resource extraction for development and capital accumulation elsewhere, repeating its long history of exploitation by outside powers.

Of course, AI trends are also exacerbating global inequalities – helping to fuel Elon Musk’s blast-off into trillionaire status – and the envisioned futures from the technology range from dystopian scenarios with mass unemployment to utopias where the productivity and financial gains are widespread.

The bottom line is that the two biggest current influences on the global economy are the Iran conflict and the technology shock driven by AI.

While the former has flared once again this week, it will eventually end. But the AI revolution is in its infancy and is likely to be the driving force for decades to come. DM