The global economy has entered an unusual and fragile phase: an investment surge centred on artificial intelligence is offsetting the damage from an energy shock linked to the war involving the United States and Iran. Growth has proved more resilient than many expected, but the apparent stability rests on forces moving in opposite directions.
The latest Brookings-Financial Times TIGER analysis says global activity has stabilised and appears set for solid growth, while warning that trade tensions, geopolitical uncertainty, persistent inflation and high public debt remain significant risks. The Peterson Institute for International Economics puts projected real global growth at 3.2% in 2026 and 3.1% in 2027.
Two shocks, one economy
The immediate threat is energy. Disruption to oil and gas supplies, including through the Strait of Hormuz, has pushed prices higher and revived fears of a broader inflationary wave. Agence France-Presse quoted IMF Managing Director Kristalina Georgieva describing the economy as being pulled between “a negative energy supply shock” and “a positive demand shock from AI.”
That contrast matters because energy shocks reduce purchasing power while AI investment increases demand for equipment, data centres, software and electricity. The result is not a uniform global cycle. Europe is more exposed to imported energy costs, while the United States is benefiting more directly from technology investment and remains a major driver of global activity.
ABN AMRO’s October assessment similarly finds that the energy shock is more damaging for Europe than for the United States, while AI, defence and energy-transition spending continue to support advanced-economy growth. The bank expects inflation to remain elevated and says the Federal Reserve, European Central Bank and Bank of England may maintain a hawkish stance.
Why AI is carrying so much weight
AI has become more than a technology story. It is now a macroeconomic support: companies are committing capital to chips, cloud infrastructure, electricity generation and specialised facilities, while investors are pricing in future productivity gains. The United States has captured a particularly large share of that spending, helping explain why its economy has remained comparatively strong despite higher borrowing costs.
There is, however, a gap between investment and proven productivity. The Brookings analysis notes that considerable optimism rests on an AI-led productivity boom that could accelerate growth, improve debt sustainability and justify elevated equity valuations. That is a plausible upside scenario, not a guaranteed outcome.
If deployment produces broad efficiency gains, businesses could expand output without equivalent increases in prices and wages. If returns disappoint, the consequences could include falling technology valuations, cancelled capital projects and pressure on economies that have become dependent on AI-related exports and construction.
Inflation and debt limit the policy response
Policymakers face a difficult choice. Supporting households against higher energy bills could soften the shock, but broad subsidies would increase fiscal pressure and potentially sustain demand at a time when inflation is already above target. Raising interest rates would protect inflation credibility but make mortgages, business loans and government refinancing more expensive.
Recent indicators illustrate the tension. Deloitte reported that US consumer prices rose 3.8% year over year in September, the highest rate since September 2023, while revised data put second-quarter annualised US growth at 2.2%. Stronger growth gives policymakers room to resist emergency stimulus, but persistent inflation makes rapid monetary easing less likely.
Debt vulnerability is more severe in poorer countries. Reporting from the IMF and World Bank meetings cited by AFP says developing economies face about $400 billion in external debt payments in 2026, with interest costs already absorbing more than 10% of average government revenue. Higher global rates and energy prices can therefore turn a manageable slowdown into a fiscal crisis.
What comes next
The next phase will depend on whether the energy disruption fades before inflation becomes entrenched, and whether AI investment translates into productivity rather than speculation. A prolonged conflict would intensify pressure on importers, central banks and heavily indebted governments. A diplomatic de-escalation could bring rapid relief, although it would not erase structural debt and trade problems.
China adds another uncertainty. Its investment surge is supporting growth, but domestic imbalances are worsening trade tensions with Europe. Beijing has also allowed provinces to use 550 billion yuan in previously unused bond quotas, signalling a willingness to support activity while avoiding a wholesale return to earlier stimulus models.
The central lesson is that headline growth is not the same as economic security. The world economy may avoid recession, but its resilience increasingly depends on a narrow technology boom surviving an unpredictable geopolitical and energy environment. That leaves governments with little margin for policy mistakes—and households with few guarantees that growth will translate into lower living costs.