IMF Growth-at-Risk 2026: Best Practice in Leading Countries
The IMF's Growth-at-Risk (GaR): Predicting Economic Storms
In an increasingly volatile global economy, traditional "baseline" forecasts often fail to capture the severity of potential downturns. To bridge this gap, the International Monetary Fund (IMF) introduced the Growth-at-Risk (GaR) framework in its Global Financial Stability Report (GFSR). This tool shifts the focus from what is likely to happen to what could happen in a worst-case scenario.
What is the Growth-at-Risk (GaR) Indicator?
The Growth-at-Risk (GaR) indicator is a macro-forecasting framework used by the IMF to quantify the downside risks to future GDP growth based on current financial conditions. Unlike standard forecasts that provide a single "most likely" growth number, GaR links financial stability to the lower tail of the probability distribution, typically measuring the 5th percentile of expected growth outcomes over a specific time horizon—usually one to three years.
Why GaR Matters for Financial Stability
The core philosophy behind GaR is that financial conditions are leading indicators of economic health. When financial conditions tighten—due to high volatility, plummeting asset prices, or credit crunches—the probability of a severe recession increases significantly, even if the "average" outlook still looks positive.
Early Warning System: It helps policymakers identify "vulnerabilities" (like high leverage) that amplify "shocks" (like a sudden interest rate hike).
Tail Risk Mapping: It explicitly calculates the "Value-at-Risk" for an entire economy, showing how much growth could be lost during a systemic crisis.
Policy Calibration: By monitoring GaR, central banks can determine if macroprudential policies (like capital buffers) need to be tightened to prevent a "fat tail" event—a rare but catastrophic collapse.
How the Framework Works
The IMF calculates GaR using a multi-step process:
Data Partitioning: Financial variables are grouped into categories like domestic financial conditions, external prices, and leverage.
Quantile Regression: This statistical method estimates the relationship between these variables and different points on the future growth distribution.
Probability Density Estimation: The results are mapped onto a distribution curve to visualize the range of possible growth outcomes.
| Feature | Standard Forecast | Growth-at-Risk (GaR) |
| Focus | Mean/Median growth | Downside "Tail" risk (5th percentile) |
| Primary Input | Past GDP, inflation, trade | Current financial conditions & leverage |
| Output | A single point estimate (e.g., 2.5%) | A probability distribution of growth |
| Purpose | General planning | Risk management and crisis prevention |
Global Financial Stability: Growth-at-Risk Country Scorecard
According to the IMF's latest Global Financial Stability Report (GFSR) and the early 2026 World Economic Outlook (WEO) update, global financial stability risks remain elevated. The Growth-at-Risk (GaR) framework highlights that while "baseline" growth is resilient, the "tail risks"—the chances of a severe downturn—are widening for several key economies due to trade tensions and high debt levels.
The scorecard below highlights leading global economies, categorized by their growth resilience and the severity of their downside risk (GaR).
2026 Global Growth-at-Risk Scorecard
| Country/Region | Flag | 2026 Forecast | GaR Status (Tail Risk) | Primary Vulnerability |
| United States | 🇺🇸 | 2.4% | 🟡 Moderate | Stretched asset valuations and fiscal deficit. |
| China | 🇨🇳 | 4.5% | 🔴 High | Property sector stress and trade restrictions. |
| India | 🇮🇳 | 6.5% | 🟢 Low | External demand shocks (but strong domestic buffers). |
| Eurozone | 🇪🇺 | 1.3% | 🟡 Moderate | Energy price volatility and industrial stagnation. |
| Emerging Markets | 🌎 | ~4.0% | 🔴 Elevated | High external debt and currency mismatch. |
Key Risk Factors Influencing the Scorecard
Trade Fragmentation: As of early 2026, the IMF warns that "geoeconomic fragmentation" is the biggest driver of GaR. Countries heavily dependent on global trade (like China and Germany) see their "tail risk" expand as tariffs and export controls increase.
Asset Price Corrections: In the U.S. and other advanced economies, asset prices are "stretched" (trading above fundamentals). A sudden correction would shift the entire growth distribution to the left, increasing the probability of a recession.
The "NBFI" Nexus: Non-bank financial institutions (NBFIs) now hold a massive share of global assets. Their interconnectedness with traditional banks creates a "contagion" risk that GaR models are currently flagging as a primary systemic threat.
Scorecard Legend
🟢 Low Risk: Strong financial buffers; growth distribution is "tight" around the baseline.
🟡 Moderate Risk: Increasing vulnerabilities; a 5% chance of growth falling near 0%.
🔴 High Risk: Significant "fat tail" risk; a 5% chance of severe contraction or financial crisis.
US Economic Outlook: Analyzing "Growth-at-Risk" in 2026
In the United States, the IMF’s Growth-at-Risk (GaR) framework serves as a vital stress test for the economy. As of the January 2026 World Economic Outlook (WEO) update, the U.S. baseline growth remains resilient, but the "lower tail" of the distribution—the GaR—reveals specific vulnerabilities that could trigger a sharp downturn.
The U.S. Growth Distribution
The IMF currently projects a "baseline" growth of 2.4% for the U.S. in 2026.
Key Drivers of US Growth-at-Risk in 2026
The AI "Market Correction" Risk: A primary factor in the current U.S. GaR is the concentration of growth in the tech sector.
The IMF warns that if AI-driven productivity gains fail to materialize as expected, a sharp correction in equity markets could reduce output by as much as 0.4% to 0.5% globally, with the impact being most acute in the U.S. due to its high market capitalization relative to GDP. Asset Price Overvaluation: U.S. asset prices are considered "stretched."
In the GaR model, high valuations act as a "vulnerability" that amplifies external shocks. A sudden rise in term premiums or a re-evaluation of Fed policy could lead to rapid deleveraging. Fiscal Deficits and Debt: Large fiscal deficits continue to put pressure on long-term interest rates. Under the GaR framework, high public debt reduces the "policy space" available to fight a recession, effectively pushing the 5th percentile outcome further into negative territory.
Trade Policy Uncertainty: While the "tariff shock" of 2025 has somewhat abated, the effective U.S. tariff rate remains high at approximately 18.5%.
The GaR model flags the potential for "flare-ups" in trade tensions as a persistent trigger for downside risk.
U.S. Risk Profile Summary
| Indicator | Current Status | Impact on GaR |
| Financial Conditions | Accommodative | 🟢 Dampens immediate risk |
| Equity Valuations | Stretched (AI-heavy) | 🔴 Increases "Tail Risk" (market correction) |
| Fiscal Space | Limited (High Debt) | 🔴 Reduces recovery capacity |
| Corporate Leverage | Moderate/Increasing | 🟡 Potential for credit stress |
Key Takeaway: While the U.S. economy is currently "shaking off" the disruptions of 2025, the IMF notes that the growth distribution is increasingly "fat-tailed." This means that while the most likely outcome is steady growth, the mathematical probability of a severe contraction (the 5th percentile) is higher than it was in previous cycles due to tech-sector concentration and fiscal pressures.
China's Structural Shift: Analyzing "Growth-at-Risk" in 2026
In China, the IMF’s Growth-at-Risk (GaR) indicator currently reflects a complex tug-of-war between strong manufacturing resilience and deep-seated internal imbalances. As of the February 2026 Article IV Consultation, China’s baseline growth is projected at 4.5%, but the "left tail" (the risk of a severe slump) remains heavily influenced by the property sector and local government debt.
The China Growth Distribution
While the IMF recently revised China's baseline growth upward due to effective stimulus and a temporary trade truce, the GaR model indicates that the 5th percentile risk is still significant. This means that under stressed financial conditions, China’s growth could decelerate much more sharply than the baseline suggests, potentially dipping toward the 1-2% range if domestic demand fails to reflate.
Primary Drivers of China's Growth-at-Risk in 2026
The Property Sector Adjustment: The protracted slump in the real estate market is the single largest "vulnerability" in China’s GaR profile. A deeper-than-expected contraction could further erode household wealth and consumer confidence, cementing deflationary pressures that push the growth distribution lower.
Local Government Financing Vehicles (LGFVs): High levels of debt within local government structures create systemic risk.
The IMF flags the potential for a "negative feedback loop" where local fiscal stress limits the government's ability to support the economy during a shock, thereby widening the downside risk. Export Over-Reliance vs. Trade Tensions: While a "trade truce" has lowered effective tariff rates to approximately 18.5% as of early 2026, China's reliance on net exports remains high. The GaR framework identifies any renewed escalation in global trade fragmentation as a major "external shock" that could trigger a tail-risk event.
Deflationary "Entrenchment": With headline inflation averaging near 0% in 2025 and only rising gradually in 2026, the risk of "Japan-style" stagnation is a key factor in the GaR model.
Persistently low inflation increases the real burden of debt, making the financial system more fragile.
China’s Risk Profile Summary
| Indicator | Current Status | Impact on GaR |
| Manufacturing/Exports | Strong/Resilient | 🟢 Stabilizes the baseline |
| Property Market | Protracted Slump | 🔴 Major driver of "Tail Risk" |
| Local Gov. Debt | Elevated/High | 🔴 Limits policy "buffer" |
| Domestic Consumption | Lackluster | 🟡 Increases vulnerability to shocks |
Key Takeaway: The IMF emphasizes that for China to "tighten" its growth distribution and reduce its Growth-at-Risk, it must pivot from an investment-led model to a consumption-led model.
Without a more forceful cleanup of property and LGFV balance sheets, the economy remains susceptible to a sharp, sudden slowdown despite its surface-level resilience.
India’s Growth Resilience: Analyzing "Growth-at-Risk" in 2026
In the current global landscape, India stands as a "bright spot" in the IMF’s Growth-at-Risk (GaR) framework. While major economies like the US and China face "fat-tail" risks (a higher probability of extreme negative outcomes), India’s growth distribution in 2026 is characterized by its stability and a relatively "thin" left tail.
The India Growth Distribution
As of the January 2026 World Economic Outlook (WEO) update, the IMF raised India’s growth forecast for FY2025–26 to 7.3%.
Key Factors Stabilizing India's GaR in 2026
Robust Domestic Demand: Unlike export-heavy nations, India’s growth is anchored by strong internal consumption and government-led infrastructure investment.
This domestic focus acts as a "buffer," preventing the growth distribution from shifting drastically to the left during global trade volatility. Healthy Financial Balance Sheets: The IMF’s 2025 Article IV Consultation highlighted that Indian banks and corporations currently hold multi-year low levels of non-performing assets (NPAs).
This financial health reduces the "vulnerability" component of the GaR model, ensuring that credit continues to flow even if external conditions tighten. Digital Infrastructure & AI Preparedness: India's significant investment in digital public infrastructure is increasingly recognized by the IMF as a structural "tail-risk" reducer. Efficiency gains from digital services help maintain a high floor for potential growth, keeping the GaR outcome well above zero.
Resilience to Trade Shocks: While global trade fragmentation is a major risk factor for 2026, India's effective management of trade shifts (including its reopening of wheat exports in early 2026) has mitigated the impact of global tariff volatility on its tail risk.
India’s Risk Profile Summary
| Indicator | Current Status | Impact on GaR |
| Domestic Consumption | Strong / Rising | 🟢 Significantly reduces tail risk |
| Corporate/Bank NPAs | Multi-year Lows | 🟢 Strengthens financial resilience |
| External Demand | Vulnerable | 🟡 Primary source of downside risk |
| Weather/Climate Shocks | Unpredictable | 🔴 Risk to rural consumption/inflation |
Key Takeaway: The IMF classifies India as a "key growth engine" for the world in 2026, contributing approximately 17% of global growth.
While "Growth-at-Risk" remains focused on potential weather shocks and geoeconomic fragmentation, India's internal fundamentals suggest it is one of the few large economies capable of maintaining a high growth floor during a global stress event.
Eurozone Vulnerability: Analyzing "Growth-at-Risk" in 2026
The Growth-at-Risk (GaR) framework for the Eurozone currently reflects a landscape of "subdued resilience." While the region has moved past the acute energy crises of recent years, the distribution of potential outcomes for 2026 is characterized by a thickening "left tail," indicating that the mathematical probability of a severe downturn remains elevated.
The Eurozone Growth Distribution
As of the January 2026 World Economic Outlook (WEO) update, the baseline growth for the Eurozone is projected at 1.1%. However, the GaR model highlights that the 5th percentile of growth—the worst-case risk scenario—is significantly lower, as the region remains highly sensitive to external shocks and trade volatility.
Primary Drivers of Eurozone Growth-at-Risk in 2026
Geoeconomic Fragmentation & Trade Shocks: The Eurozone is one of the world's most "open" economies, making it structurally vulnerable to global trade tensions. A primary "tail risk" factor is the potential for renewed US tariffs or intensified export competition from China, which could hit the region’s manufacturing base and reduce GDP by an estimated 0.3 to 0.4 percentage points.
German Industrial Recovery: Germany, the region's largest economy, is currently navigating a fragile rebound. While a massive defense and infrastructure investment package is expected to boost German GDP by 0.5% in 2026, any delays in these fiscal measures act as a vulnerability that could drag down the entire Eurozone's growth floor.
Energy Price Asymmetry: Although oil prices are projected to decrease by roughly 7% in 2026, the Eurozone remains structurally exposed to sudden commodity price spikes. This lack of energy sovereignty creates a "persistent tail risk" that keeps the probability of high-cost scenarios on the map.
Monetary Policy Stasis: Unlike the US or UK, where rates are expected to decline, the current outlook anticipates the European Central Bank (ECB) will keep policy rates steady at around 2% through 2026. This "neutral" stance aims to anchor inflation but leaves less room for error if a sudden contraction occurs.
Eurozone Risk Profile Summary
| Indicator | Current Status | Impact on GaR |
| Manufacturing | Recovering (France 2.2% peak) | 🟡 Fragile; heavily export-dependent |
| Labor Market | Stable / Low Unemployment | 🟢 Strong buffer against immediate collapse |
| Trade Policy | High Uncertainty | 🔴 Primary driver of the "5th percentile" risk |
| Fiscal Policy | Stimulative (Defense/Infra) | 🟢 Offsets some downside trade pressure |
Key Takeaway: The Eurozone's 2026 GaR profile suggests an economy that is "stable but stuck." While domestic demand is expected to be the main growth driver, the region’s reliance on a stable global trading environment means that its "worst-case" scenario remains more severe than that of more domestic-focused economies like India.
Emerging Markets: Navigating "Growth-at-Risk" in 2026
In 2026, the Growth-at-Risk (GaR) profile for Emerging Markets (EMs) is a story of "divergent resilience." While the baseline growth for these economies remains a robust 4.0%, the "at-risk" downside tail is heavily influenced by a shifting global landscape where domestic strength must offset increasing external turbulence.
The Emerging Market Growth Distribution
The distribution for EMs in 2026 is currently skewed. While the "most likely" outcome is steady expansion, the 5th percentile risk—the growth level we expect to see in a severe stress event—is wider than in previous years. This "fat tail" reflects a high sensitivity to global capital flows and trade policy shifts.
Primary Drivers of EM Growth-at-Risk in 2026
The "Domestic Anchor" Effect: For the first time in a decade, nearly 75% of EM growth is being driven by domestic demand rather than just exports. In the GaR framework, this acts as a critical "tail-risk reducer," preventing a complete collapse in growth even if global trade slows down.
Geoeconomic Fragmentation: The IMF identifies "trade diversion" as a double-edged sword. While countries like Mexico and Vietnam benefit from supply chain shifts, the overall uncertainty around trade barriers adds to the volatility of the growth distribution. Any sudden escalation in trade wars could push the 5th percentile outcome toward stagnation.
Monetary Policy Spillovers: As inflation in EMs cools toward an average of 3.9%, many central banks have begun cutting rates.
However, the GaR model flags "currency mismatch" as a lingering vulnerability. If the US dollar remains unexpectedly strong, it could trigger capital outflows, tightening financial conditions and shifting the growth curve to the left. Fiscal Space Constraints: Unlike 2020, many EMs enter 2026 with limited "fiscal buffers."
High debt-to-GDP ratios mean that if a shock occurs, governments have less room to stimulate the economy, effectively making the "worst-case scenario" deeper.
Emerging Markets Risk Scorecard
| Region | GaR Status | Primary Driver of Risk | Resilience Factor |
| Emerging Asia | 🟢 Low/Stable | Tech-sector volatility | High digital adoption & savings |
| Latin America | 🟡 Moderate | Political & fiscal uncertainty | Strong commodity demand |
| Emerging Europe | 🔴 Elevated | Energy price sensitivity | Near-shoring to the Eurozone |
| Middle East | 🟡 Moderate | Oil price fluctuations | Massive sovereign wealth buffers |
Key Takeaway
For Emerging Markets in 2026, resilience is no longer a given—it is earned through policy. The IMF notes that countries with deeper local-currency bond markets and more transparent fiscal rules have significantly "thinner" downside tails. Conversely, economies reliant on short-term foreign debt remain in the "danger zone" of the Growth-at-Risk framework.
Reducing Tail Risk: Best Practices from Leading Economies in 2026
As global growth faces divergent forces, leading countries have moved beyond traditional forecasting to focus on "resilience-by-design." According to the latest January 2026 World Economic Outlook (WEO) and recent Global Financial Stability Reports (GFSR), the most successful economies are using specific best practices to pull their "Growth-at-Risk" (GaR) distributions away from the dangerous left tail.
1. Rebuilding "Fiscal Buffers" (The US and Eurozone Approach)
A primary lesson from 2025 is that high debt levels act as a risk magnifier. Leading economies are now prioritizing fiscal consolidation—reducing deficits during periods of steady growth—to ensure they have the "dry powder" needed to combat future shocks.
Best Practice: Creating credible, medium-term fiscal frameworks that prioritize high-return investments (like AI and infrastructure) while phasing out broad, untargeted subsidies.
Result: This shifts the GaR 5th percentile upward by ensuring the government can afford a massive stimulus if a "tail event" occurs.
2. Deepening Local Currency Markets (The India and EM Model)
One of the most effective ways to reduce GaR in emerging markets is reducing "currency mismatch." India, in particular, has been praised for its deep local-currency bond markets, which have reduced its sensitivity to US Federal Reserve policy shifts.
Best Practice: Encouraging domestic ownership of sovereign debt and developing liquid local-currency markets.
Result: When global investors flee during a "risk-off" event, domestic institutions provide a floor, preventing a collapse in credit and growth.
3. Strengthening Banking & Operational Resilience (The ECB Strategy)
The European Central Bank (ECB) has made "Operational Resilience" a top supervisory priority for 2026. This focuses on making sure banks can survive not just financial shocks, but also geopolitical and cyber disruptions.
Best Practice: Implementing rigorous stress tests that include "non-financial" risks like cyber-attacks on payment systems and supply chain failures.
Result: A banking sector that remains functional during a crisis prevents a localized shock from becoming a systemic "Growth-at-Risk" event.
4. Harnessing AI for Productivity Gains (The North American Focus)
In 2026, AI is no longer just a buzzword; it is a macro-driver. Leading countries are using industrial policies to ensure AI investment translates into actual productivity gains rather than just an asset bubble.
Best Practice: Aligning industrial policy with digital reliability and workforce retraining to ensure AI adoption is widespread across the "low-speed" parts of the economy.
Result: Higher structural productivity raises the "median" growth rate, which mathematically pulls the entire risk distribution—including the downside tail—to the right.
Best Practice Summary Scorecard
| Strategy | Primary Benefit | Leading Example |
| Fiscal Discipline | Rebuilds crisis-fighting capacity | 🇩🇪 Germany / 🇺🇸 USA (planned) |
| Market Deepening | Reduces capital flight risk | 🇮🇳 India |
| Supervisory Stress Tests | Prevents banking contagion | 🇪🇺 Eurozone (ECB) |
| Targeted AI Investment | Drives structural productivity | 🇺🇸 USA / 🇰🇷 South Korea |
Conclusion
The defining characteristic of leading economies in 2026 is adaptability. By combining disciplined fiscal management with aggressive investments in new growth engines like AI, these countries are successfully "narrowing the tail" of their economic distributions. The Growth-at-Risk framework proves that stability is not the absence of shocks, but the presence of robust policy frameworks—independent central banks, transparent fiscal rules, and resilient financial systems—that allow an economy to bend without breaking.
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