The global economy is expanding more resiliently than many forecasters expected, but its sources of strength are increasingly concentrated. The latest evidence points to a world being pulled forward by artificial-intelligence investment, defence spending and the energy transition—while conflict, high borrowing costs and uneven domestic demand threaten to widen the gap between winners and losers.
The International Monetary Fund says AI hardware and related technology products now account for more than one-tenth of world goods trade. It also describes growth as highly variable: AI-linked economies are doing best, while war-damaged countries, energy importers and governments with limited policy room face heavier pressures. The IMF’s October assessment captures the central contradiction: global activity remains steady, but the expansion is not broadly shared.
Why AI matters beyond Silicon Valley
The current AI cycle is not simply a story about software companies. It is driving demand for semiconductors, data centres, electricity, construction, advanced manufacturing and network equipment. That helps explain why technology shipments have become such a significant part of global trade and why countries positioned in chip production, cloud infrastructure and industrial equipment are outperforming.
Financial institutions see the same pattern. ABN AMRO describes a “capex troika” of AI, defence and energy-transition investment supporting advanced economies, while HSBC reports that AI-related shipments are helping sustain trade and that global purchasing-manager surveys have reached a 40-month high. ABN AMRO’s outlook and HSBC’s monthly analysis both suggest that investment, rather than household consumption alone, is currently carrying much of the expansion.
That strength has limits. AI investment produces large upfront costs, and its benefits may take years to spread through productivity and wages. Companies are also making decisions in an environment of expensive credit. If expected returns disappoint, spending could slow abruptly, leaving economies exposed to excess data-centre capacity, weaker technology valuations and reduced orders for suppliers.
Inflation has not disappeared
The United States illustrates the mixed picture. A revised estimate put second-quarter annualised GDP growth at 2.2%, up from an earlier 1.5%, while consumer spending growth was revised to 3.8%. Yet September consumer prices were 3.8% higher than a year earlier—the fastest increase since September 2023. Deloitte’s economic update reports that the underlying strength of demand is colliding with renewed price pressure.
Energy is a major reason. Oil prices have remained vulnerable to developments involving Iran and the Strait of Hormuz, a vital route for global energy shipments. A market briefing reported Brent crude near $103 a barrel after easing concerns about an immediate escalation, while European analysis described fuel-price inflation accelerating in September. Market coverage and European reporting show how quickly geopolitical risk can feed into inflation expectations.
That creates a difficult choice for central banks. Cutting rates could protect investment and indebted households, but doing so while energy costs and demand remain strong could entrench inflation. Holding or raising rates would contain prices more forcefully, yet could weaken construction, housing and the very capital spending now supporting growth. ABN AMRO expects the Federal Reserve, European Central Bank and Bank of England to remain hawkish as inflation stays elevated.
A wider divide between economies
The distributional consequences are significant. Economies integrated into AI supply chains can attract factories, electricity investment and high-paid technical work. Others face higher energy bills, weaker currencies and rising debt-service costs without receiving comparable investment. China’s industrial expansion is supporting growth, according to ABN AMRO, but domestic supply-demand imbalances are also contributing to trade tensions with the European Union.
Governments therefore face pressure to secure strategic industries while avoiding protectionism that raises costs. Subsidies can accelerate semiconductor and clean-energy capacity, but they may also divert public money toward projects with uncertain returns. Developing countries, meanwhile, risk being left with the infrastructure costs of the digital transition but fewer high-value jobs.
What comes next
The next phase will depend on whether investment becomes productivity. If AI tools lower costs across manufacturing and services, the boom could broaden and help offset ageing populations, weak productivity and heavy public debt. If gains remain concentrated among a small group of firms and countries, political backlash over jobs, market power and public subsidies will intensify.
Three indicators will matter most: whether AI-related capital spending continues without a sharp correction; whether energy prices remain elevated; and whether inflation forces central banks to keep borrowing costs high. The global economy is not facing a single synchronized downturn. It is entering a more fragmented cycle in which technology-led growth coexists with geopolitical shocks and unequal resilience.
That makes the headline question less whether the world is growing than who is equipped to grow with it. The answer will depend on investment quality, energy security, access to finance and governments’ ability to spread productivity gains beyond the sectors currently benefiting from the AI surge.