The following is a guest editorial courtesy of Carolane de Palmas, Markets Analyst at Retail FX and CFDs broker ActivTrades.

The International Monetary Fund’s latest outlook paints a picture of a global economy that remains unexpectedly resilient, even as trade disruptions and political uncertainty continue to cloud the horizon. According to the IMF, global growth is expected to reach 3.3% in 2026, an upward revision from previous estimates, largely driven by stronger momentum in the United States and China. This upgrade reflects an economy that has adapted to higher interest rates, shifting supply chains, and ongoing trade frictions better than initially feared.

For 2026, the IMF expects the drag from tariffs and policy uncertainty to gradually fade, allowing growth to stabilise. That baseline scenario, however, was finalised in December 2025, before a sharp escalation in geopolitical tensions at the start of the year. The IMF’s projections relied on a steady reduction in US tariffs through 2027. This followed a period where the global economy stayed resilient against previous trade tensions, bolstered largely by a wave of AI-driven investment.

But the IMF has been clear that this outlook is conditional. 

In its report, it stated that trade tensions could easily re-emerge, prolonging uncertainty and weighing more heavily on economic activity. Domestic political instability or geopolitical shocks have the potential to disrupt financial markets, supply chains, and commodity prices with little warning. The Fund has also reiterated that central bank independence remains essential in this environment, warning that political interference could undermine policy credibility, unanchor inflation expectations, and increase the risk of costly policy errors. Clear and consistent communication from monetary authorities, the IMF argues, will be critical to preserving macroeconomic stability as uncertainty rises.

Greenland and the Return of Trade Risk to the Global Growth Outlook

One of the most immediate threats to the IMF’s relatively constructive scenario comes from escalating tensions between the United States and its European allies over Greenland. President Donald Trump’s renewed push to acquire the semi-autonomous Danish territory has introduced a new and unexpected source of geopolitical risk. His threat to impose 10% tariffs on Denmark and several other European countries unless negotiations move in Washington’s favour has raised the prospect of a fresh trade confrontation between the US and Europe.

European leaders have pushed back firmly, with Greenland’s prime minister stating that the territory will not give in to pressure, while EU allies have rallied in defence of Danish sovereignty. Trump seems to have refused to rule out aggressive measures, saying he would “100%” follow through on tariff threats and telling European leaders that the US “has to have” Greenland. The IMF has warned that such actions risk triggering a spiral of escalation, with tit-for-tat measures that would materially damage global growth and likely provoke a sharp sell-off in financial markets.

IMF chief economist Pierre-Olivier Gourinchas has been explicit in his assessment that there are no winners in a trade war. A sustained escalation between the US and Europe would hurt households on both sides of the Atlantic and undermine the fragile stabilisation the global economy has achieved. While trade tensions had shown signs of easing since late 2025, the Greenland dispute underscores how quickly geopolitical shocks can reverse that progress.

AI Valuations: The Growth Engine Markets Cannot Afford to See Stall

At the same time, the IMF is increasingly focused on a second, less visible but potentially equally disruptive risk: the possibility that expectations around artificial intelligence prove too optimistic. AI-related companies now account for a significant share of global equity market capitalisation and have become a primary driver of corporate investment spending. This concentration means that financial markets are increasingly dependent on a relatively small group of large technology firms delivering sustained revenue growth and productivity gains.

If AI adoption continues to translate into higher productivity and stronger business dynamism, it could support a more durable expansion and help offset other global headwinds. However, if results fall short of expectations, the downside risks are substantial. Elevated valuations, rising debt levels among firms financing AI investments, and increasingly complex ownership and procurement arrangements between major AI players have increased opacity and concentration risk across markets.

The IMF has warned that even a relatively mild correction in AI-related equities could have outsized effects, given how much recent wealth gains have been driven by rising share prices. A sharper repricing could trigger negative wealth effects, reduce consumption and investment, and tighten global financial conditions. In a scenario outlined in its previous outlook, a moderate correction in AI stock valuations could shave around 0.4 percentage points off global growth in 2026.

Bottom Line

Together, rising geopolitical tensions and stretched AI valuations highlight the fragility beneath the surface of today’s resilient growth narrative. The IMF’s message is not that a downturn is inevitable, but that the margin for error is narrowing. In 2026, global growth may depend less on economic fundamentals alone and more on political restraint, credible policymaking, and whether the promise of AI can live up to the expectations now embedded in financial markets.

Sources: IMF, Reuters, The Wall Street Journal, NBC News, The Guardian, BBC

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk. Forecasts are not guarantees. Rates may change. Political risk is unpredictable. Central bank actions may vary. Platforms’ tools do not guarantee success.