IMF lifts eurozone forecast to 1.1%, warns on energy costs

The International Monetary Fund expects the eurozone economy to grow 1.1% in 2026, according to its October World Economic Outlook, released Oct. 13 at the IMF and World Bank annual meetings in Bangkok. The figure is not a cut. It is 0.2 percentage points higher than the Fund's July estimate. Growth is still set to slow from 1.2% in 2025, and the IMF sees only a small pickup to 1.2% in 2027. The Fund said high energy costs tied to the Middle East conflict and Russia's war in Ukraine, along with weak consumer confidence, will hold the currency bloc back.kyivpost+2

The IMF forecasts eurozone inflation at 3.1% this year and 2.8% in 2027, both well above the European Central Bank's 2% target. "Core inflation is expected to return to 2% only gradually," the Fund said. It expects that to happen around mid-2028 in the eurozone and by the end of 2027 in Britain. The report also warned that "gas inventories remain below seasonal norms in parts of Europe," which leaves markets exposed to bad weather during the winter heating season.euronews

A split outlook across Europe

The IMF raised Germany's 2026 forecast to 1.3%, close to double the 0.7% it projected in July. It expects German growth of 1.1% in 2027. According to DW, the Fund credited government spending on infrastructure and defense, stronger exports and demand linked to artificial intelligence. Spain is expected to keep growing at 2.5%. France is seen expanding just 0.4%, down from 0.9% in 2025, with unemployment rising to 8.4% from 7.7%. The IMF raised Britain's 2026 forecast by 0.3 points to 1.3%. It expects UK growth to slow to 1.2% next year "as higher energy prices and long-term interest rates weigh on consumption and investment".dw+1

The forecast comes as energy prices push inflation higher. Germany's inflation rate reached 3.3% in September, its highest level since December 2023. European stock markets traded higher on the day of the release.marketscreener+1

War and AI shape the global picture

The IMF put global growth at 3.1% for 2026, up from 3.0% before, and kept its 2027 forecast at 3.4%. It expects global inflation to rise to 4.7% this year. The Fund said the U.S. war with Iran and the boom in AI investment have created a "fragmented" world economy. It projects the Middle East and Central Asia region to shrink 0.3% this year.aa+2

An IMF official said the forecasts were revised "in the last minute almost" to account for higher oil prices. IMF Chief Economist Silvana Tenreyro urged governments to keep energy support "temporary and targeted," and said monetary policy should "remain firmly focused on price stability".euronews+1

"The economy has been resilient, but that resilience is reaching its limits," Tenreyro said.euronews