IMF: AI Will Not Fully Offset Climate, Aging and Fragmentation Risks to Growth

The IMF sees demographics, climate risks, geoeconomic fragmentation and artificial intelligence as overlapping structural transformations—not four isolated shocks. AI offers a genuine productivity opportunity, but the Fund’s broader warning is that countries with limited fiscal room, weaker access to finance and exposure to conflict or climate shocks may struggle to turn that opportunity into sustained growth. 1113

The growth outlook is already weaker than past norms

The IMF’s April 2026 reference forecast put global growth at 3.1% in 2026 and 3.2% in 2027, below the 3.7% average for 2000–19. It also said the growth slowdown and rise in inflation would be particularly pronounced in emerging market and developing economies. 513

The medium-term backdrop is similarly subdued. In its 2024 analysis, the IMF projected global growth of 2.8% by the end of the decade without timely policy action or a boost from emerging technologies—one percentage point below the pre-pandemic average. Demographic pressures on labor supply were a central reason: global labor-supply growth was projected to fall to 0.3% by 2030, less than one-third of its average pace in the decade before the pandemic. 4

Why the four forces reinforce one another

The IMF frames the challenge as a set of transformations that can affect growth, the frequency and nature of shocks, debt sustainability, fiscal space, and the effectiveness of macroeconomic policy at the same time. 1121

• Demographic change can reduce labor-supply growth in aging economies, while countries with young and rapidly growing populations need enough productive jobs and human-capital investment to realize a demographic dividend. 420
• Climate risks threaten long-term prosperity and require investment in adaptation and resilience. 2230
• Fragmentation and protectionism add to the challenge of lifting medium-term growth, alongside aging and weak productivity. 18
• AI can raise output through task automation, within-task productivity improvements and AI-assisted research and development. But its aggregate effect depends on how those channels interact, rather than on frontier capability alone. 9

The interaction is the central risk. Climate-related spending needs can collide with high debt; fragmentation can make technology diffusion and investment more difficult; demographic change can alter labor markets and public spending needs; and AI gains may accrue first where technology investment and value-chain integration are already strongest. The IMF’s January and July 2026 updates noted that technology- and AI-related investment was supporting growth more in North America and Asia, while AI-driven demand was lifting economies integrated into the global technology value chain. 616

That does not mean AI is economically unimportant. It means its gains are uncertain, unevenly distributed and dependent on complementary capabilities. The supplied evidence does not support a precise, IMF-published annual decomposition of the four forces for emerging and developing economies from 2026 to 2035. It should therefore not be read as evidence that AI will mechanically cancel the other pressures.

What the available estimates do—and do not—show

A report describing IMF analysis of 143 economies over 2026–35 says the combined structural pressures could require governments to meet additional spending needs of roughly 3–4% of GDP a year over the coming decade. The same reporting says advanced economies could lose about 0.7 percentage point of annual per-capita GDP growth from the combined forces. 1726

However, the source material provided here does not include a comparably specific annual estimate for emerging and developing economies, nor does it provide a robust country-group breakdown of climate, demographic, fragmentation and AI effects separately. The defensible conclusion is qualitative: the IMF expects the burden to be harder to manage where preexisting vulnerabilities are greatest, not that one universal loss estimate applies to every developing economy. 1113

Why MENA and Sub-Saharan Africa face a tighter policy trade-off

For countries in the Middle East and North Africa and Sub-Saharan Africa, overlapping constraints can reduce room for error. The IMF’s 2026 outlook stressed that conflict-related shocks take a more pronounced toll on vulnerable economies, particularly commodity-importing emerging market and developing economies with preexisting fragilities. 5

High debt and borrowing costs can force governments to balance immediate stabilization needs against investments with long-term payoffs. At the same time, many countries need to finance climate adaptation, infrastructure, education, health systems and digital capacity. The challenge is especially acute when conflict disrupts activity and when fiscal buffers or affordable long-term financing are scarce.

The result is a difficult choice: underinvesting in resilience and human capital can weaken future growth, while financing everything through additional debt can worsen debt vulnerabilities. The IMF’s long-term resilience work therefore emphasizes sound macro-fiscal planning, better spending efficiency, domestic resource mobilization, official development assistance and private-sector engagement. 30

The IMF’s policy shift: from crisis response to resilience and productivity

The IMF’s recommended direction is not a single AI strategy or a single climate strategy. It is a coordinated policy framework that protects stability while expanding the capacity to invest and adapt. 1121

Preserve macroeconomic credibility

Price stability, credible fiscal plans and sustainable debt dynamics remain the foundation. Fiscal consolidation, where needed, should be realistic and designed to preserve priority social spending and high-quality investment rather than relying on indiscriminate cuts. The IMF identifies fiscal space and debt sustainability as core questions in a period of rising structural spending pressures. 1121

Raise productivity and investment quality

Structural reforms that improve the allocation of capital and labor can lift medium-term output per person. The IMF’s 2024 medium-term analysis highlighted persistent frictions that prevent capital and labor from moving to more productive firms. 31

That makes the enabling conditions for AI especially important: education, digital skills, reliable infrastructure, investment capacity and firms able to adopt new technologies. AI can be a productivity lever, but it works best as part of a broader growth strategy. 923

Mobilize revenue and spend it better

Domestic resource mobilization and more efficient public spending are central to financing resilience without placing the entire burden on debt. IMF research on long-term resilience identifies revenue mobilization, spending efficiency, public debt financing, development assistance and private-sector participation as possible components of the financing mix. 30

Build climate and economic resilience

Adaptation requires more than emergency response. The IMF’s work emphasizes physical, financial and economic resilience, as well as policies that reduce the socioeconomic impact of climate shocks. 3033

For eligible members, the IMF’s Resilience and Sustainability Facility provides longer-term, affordable financing for structural challenges related to climate change and pandemic preparedness, alongside required reforms. 2832

Deepen regional integration

Regional integration can help countries diversify markets, strengthen resilience and support medium-term growth. The IMF has identified it as a key lever alongside repairing public finances and lifting trend growth. 35

Bottom line

AI may improve productivity and expand growth opportunities, but the IMF does not present it as a substitute for climate adaptation, demographic adjustment, open economic links or credible macroeconomic policy. The defining challenge through 2035 is whether countries can build the fiscal capacity, skills, infrastructure and institutions needed to capture AI’s gains while absorbing climate, demographic and geopolitical shocks. 1123

For emerging and developing economies, particularly those facing conflict, debt stress and high financing costs, that agenda is as much about resilience and financing as it is about technology. 530