The global economy is being pulled in two opposite directions. An artificial-intelligence investment boom is supporting demand, trade and growth, while the war in the Middle East has pushed energy prices higher and weakened household and business confidence. The result is not a clear recovery, but a precarious equilibrium that depends on both technology spending and the avoidance of a deeper energy disruption.
The International Monetary Fund’s October World Economic Outlook projects global growth of 3.1% in 2026, down from 3.5% in 2025, before a modest acceleration to 3.4% in 2027. Global inflation is expected to rise to 4.7% this year and ease to 4.1% next year. The headline numbers suggest continuity. Beneath them, however, the IMF sees a widening divide between economies benefiting from AI-related investment and those exposed to higher energy costs.
Two shocks, moving in opposite directions
The energy shock operates through familiar channels. Higher oil and gas prices raise transport, manufacturing and heating costs, squeeze consumers’ purchasing power and complicate central banks’ efforts to bring inflation down. The IMF says its projections assume that oil and gas shipments through the Strait of Hormuz resume by March, an assumption that highlights how dependent the outlook is on a geopolitical development beyond economic policymakers’ control.
In contrast, AI is functioning as a powerful demand shock. Investment in data centres, chips, cloud infrastructure and related equipment has created new orders across technology and industrial supply chains. The IMF describes this spending as a key reason activity held up better than expected in the first half of the year despite war and trade tensions.
“The global economy has been resilient, but that resilience is under strain with risks tilted to the downside,” the IMF said in its October briefing.
That resilience is uneven. Advanced economies are forecast to grow 2.1% in 2026, while China’s growth is expected to slow to 4.5%, according to reporting on the IMF outlook by ABC News. Economies integrated into the AI supply chain, including parts of East Asia, are positioned to benefit from semiconductor and equipment demand. Energy-importing countries, particularly poorer economies with limited fiscal room, face the opposite combination: higher import bills and less access to the investment boom.
Why the AI cushion is not guaranteed
The central question is whether current AI spending reflects durable productivity gains or an investment cycle vulnerable to disappointment. The IMF identifies both possibilities. If companies deploy AI effectively, productivity could rise, supporting faster growth without the same inflationary pressure. If expectations run ahead of commercial results, markets could correct sharply and expose the concentration of risk in a small number of firms, sectors and economies.
This concentration matters because the boom is capital-intensive. A limited group of technology companies and their suppliers accounts for a large share of investment, while the benefits of higher productivity may take years to reach smaller firms and workers. The gains could also be distributed unevenly across countries, reinforcing existing gaps in capital, skills and digital infrastructure.
Supporters of rapid AI investment argue that the technology could ultimately expand productive capacity, reduce costs and create new industries. Skeptics counter that the current spending surge may be driven partly by fear of missing out, inflated valuations and competition among firms to secure computing capacity. A slowdown in investment would remove one of the main supports currently offsetting weak demand elsewhere.
What comes next
For policymakers, the challenge is to prevent the energy shock from becoming entrenched while allowing productive investment to continue. Central banks face an uncomfortable trade-off: energy-driven inflation may call for tighter policy even as higher borrowing costs threaten AI investment and already-soft consumer demand.
Governments also face distributional choices. Targeted support for vulnerable households can soften the impact of energy prices, but broad subsidies may worsen fiscal pressures and preserve demand for scarce fuel. Investment in efficiency, renewable power, grids and storage would reduce exposure over time, although those projects cannot quickly replace disrupted oil and gas flows.
The IMF’s forecast offers neither a collapse scenario nor a clean landing. It describes an economy still expanding, but increasingly reliant on a narrow technology boom and a fragile geopolitical assumption. If energy routes stabilize and AI productivity begins to materialize, 2027 could bring stronger growth. If conflict persists, oil prices remain elevated or AI expectations falter, today’s apparent resilience could prove less like a foundation than a delay.