There’s a lot in this report. I think we already know the basics, with two feedback loops competing to determine the short- to medium-term trajectory of the world economy. For example:

Two major transformative forces—geopolitics and technology—are reshaping the global economy, with their short-term impact gradually coming into view and their longer-term impact still largely unknown.

“Geopolitics” here mostly means the self-inflicted wounds caused by the completely optional wars of aggression launched by Russia, the U.S. and allies. “Technology” of course means all the capital investment and productivity hopes surrounding AI. It would be interesting to diagram all this out using causal loops or those bathroom-plumbing type system dynamics diagrams. Prices, public and private debts, and interest rates could all somehow be incorporated into that as signals. Maybe later. But regarding the competition between the positive and negative feedback loops, IMF says:

Risks are skewed to the downside. A prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated and volatile, revive inflationary pressures, worsen fiscal and external balances, and weigh on growth. Further disruptions to energy infrastructure, cyberattacks, or extreme weather events could amplify these effects. As the Commodity Special Feature shows, price increases driven by physical supply disruptions have larger and more persistent macroeconomic effects than those driven by geopolitical risks. A reassessment of AI-related profitability and productivity prospects could sharply reduce investment, trigger equity market corrections, and tighten financial conditions, with spillovers to economies integrated into technology supply chains and stakes in technology stocks. Fiscal vulnerabilities and renewed trade tensions could further weaken growth. Upside risks are also evident: AI-related investment could prove more persistent, productivity gains could materialize faster than assumed, new trade arrangements could improve predictability and resilience, and higher fossil fuel prices could accelerate investment in energy security.

We can say with complete confidence that either good things will happen or bad things will happen…but they are saying they think bad things are more likely. I take some comfort in the knowledge that so far the collective wisdom/guess of everyone participating in global financial markets is that good things are more likely. That is not everything, but it is not nothing.

I could spend any amount of time poring over this report, but I’ll highlight just one more interesting passage about how energy markets have adjusted to the (illegal, unprovoked) U.S. attack on Iran. Setting the horrible and unnecessary human suffering aside for a moment, the whole thing has been an interesting real world experiment on what either the peak oil scenario that did not come to pass might have looked like, or what a well-implemented global carbon tax scenario could look like.

Although oil prices almost doubled in the early months of the conflict, they later settled at levels only 20 percent to 40 percent higher than those before the conflict, reflecting market assessment that a resolution would follow soon enough. In addition, resilience of activity in the first half of 2026 in some economies reflected a combination of the flexible supply adjustment, a drawdown of inventories, lower energy intensity than in previous decades, and the ability of households and firms to adapt to higher energy prices. The closure of the Strait of Hormuz resulted in a significant supply shock, disrupting a transit route through which about 20 million barrels of oil, or roughly a quarter of the world’s maritime oil trade, flowed each day prior to the start of the war. However, the flexibility of supply limited how much volume was lost. Persian Gulf producers redirected some supply to other ports, while production outside the Gulf rose by 2 million barrels a day. The release of global inventories supplied a further 4 million barrels. Balancing of the market at the observed higher prices still implied demand compression of about 5 million barrels a day during the second quarter of 2026. China, the world’s largest oil importer, helped absorb some of the adjustment in global oil markets by reducing the volume of its crude oil imports by 23 percent between March and June 2026 relative to the same period a year earlier, a reduction driven by both withdrawals from its large domestic inventories and a compression in its refined oil consumption. At the same time, the dependence of the global economy on oil—while still significant—has fallen steadily over time (Figure 1.3, panel 1). This reflects greater energy efficiency and a shrinking share of energy-intensive activities in the economy—at least until recently—as well as a diversification of energy sources away from fossil fuels, driven primarily by electrification and greener electricity production (Figure 1.3, panel 2). Over the past two decades, energy usage per dollar of global GDP has fallen by 32 percent. Furthermore, since 2010, electricity generated by renewable sources has surged, while fossil fuel generation has stagnated, with renewables accounting for 60 percent of the total increase in electricity production. Reduced dependence on oil has likely lowered the sensitivity of growth to the oil price compared with past large shocks. It is unclear, however, whether the trend toward renewable electricity production will continue, with the demand pressures coming from AI data centers.

A closure of the Strait of Hormuz without the flexibility of supply responses would have resulted in a severe increase in oil prices and reduction in growth. Model-based estimates suggest that the initial loss in oil supply from the closure would have increased oil prices to an average of about $110 a barrel for the year, reducing global growth in 2026 by 0.9 percentage point (Figure 1.3, panel 3). The flexibility of supply, however—including rerouted production in the Gulf, increased production elsewhere, and drawdown of inventories—is estimated to have lowered the implied increase in oil prices to an average of $85 a barrel for the year, reducing the hit to global growth by 0.5 percentage point to 0.4 percentage point. Furthermore, the 20 percent reduction in the oil intensity of world GDP experienced since the mid-2010s has likely reduced the estimated impact of higher oil prices on global growth in 2026 by an additional 0.1 percentage point, bringing the net toll to 0.3 percentage point.

So a small global carbon price introduced decades ago and then gradually ramped up could probably have gotten us to this same place with a minimum of pain, other than for the fossil fuel industry itself, but even they might have adjusted by investing in renewables, nuclear, and R&D rather than propaganda and bribes. Even if the carbon price were not global, as long as it is done by a critical mass of countries, they could use border adjustment tariffs to impose it approximately on the holdouts. This is good old Schumpeterian “creative destruction” capitalism with a nudge from government – rational people across the political spectrum should be able to get behind this.