The global economy is set to grow three per cent in 2026 and 3.4 per cent in 2027, the International Monetary Fund projected in its world economic outlook update on Wednesday, US time.
Australia's economy is expected to grow by 1.9 per cent in 2026, down from a forecast of two per cent in April, and 1.7 per cent the year after.
That puts Australia on track to grow faster than every major advanced economy bar one over the next two years, Treasurer Jim Chalmers said.
"The IMF is clear that two of the biggest factors shaping the outlook for economies over the next two years are how exposed they are to the fuel shock and the AI boom, and Australia is well placed to manage both," he said in a statement.
"We have more fuel today than we had before the war and investment in AI infrastructure is booming, which contributed to (capital expenditure) being six times higher than expected in the most recent quarter."
The global economy was stuck between two opposing forces, the IMF said.
How countries would be impacted depends on their reliance on energy imports and where they were on the technology value chain.
On one hand, the Middle East energy shock continued to drive up inflation and push down economic growth, even though oil prices had eased since April.
Energy exporters, like Australia, were best-placed to weather the shock.
On the other hand, the AI boom could drive up investment and productivity, supporting economic growth.
The risk to this was if expectations about AI profits and productivity gains were revised downward.
"In such a scenario, investment in technology-intensive sectors could retrench abruptly, and frothy equity valuations - particularly in AI-exporting economies and markets with high concentration in technology firms - could correct sharply," the IMF said.
If the bubble pops, the economic hit could be amplified by AI-exposed investors and weigh on consumption.
"The broader consequence could be tighter global financial conditions, balance sheet pressures, and weaker activity extending beyond the technology sector."
The IMF also urged governments to wind back household subsidies, such as Australia's cut to the fuel excise, as energy prices normalise.
"Energy-related fiscal support, especially price-distorting measures, should be removed as the energy shock abates so as to preserve fiscal buffers," it said.
Labor reduced its 32c per litre fuel excise cut to 16c per litre at the start of July and has committed to fully reinstating the excise on August 2.
