The global economy is proving more resilient than many forecasters expected, but the headline growth figures conceal an increasingly unstable bargain: artificial-intelligence investment is supporting demand just as war, energy costs, debt and trade tensions restrict governments’ room to respond.
The International Monetary Fund expects the world economy to expand by 3.1% in 2026 and 3.4% in 2027. Yet inflation is projected to rise from 4.1% last year to 4.7% this year, largely because of higher energy and food prices, before easing in 2027. The IMF says the Middle East and Central Asia region could contract by 0.3% if disruption around the Strait of Hormuz persists, while emerging and developing economies are expected to grow faster than advanced economies.[1]
That combination—steady output alongside renewed price pressure—is the central economic story. Growth has not collapsed, but its foundations are becoming more uneven and its risks more difficult to manage.
AI is cushioning the slowdown
Investment in data centres, semiconductors, cloud infrastructure and software has become a major source of activity. The IMF says a technology cycle driven by artificial-intelligence adoption is partly offsetting the effects of the Middle East war.[2] The OECD similarly says robust AI-related investment helped sustain production and trade even as global growth eased in the first half of 2026.[3]
For companies and governments, the boom offers more than a short-term stimulus. Faster automation could raise productivity, lower some business costs and create new industries. It also gives technology-exporting economies an advantage in a period when trade relationships are increasingly political.
But the investment surge has encouraged exceptionally high expectations. Reuters reported that markets are already balancing record equity valuations and multitrillion-dollar AI spending against rising borrowing costs, sovereign debt and geopolitical uncertainty.[4] If investors conclude that expected profits cannot justify the scale of construction, a sharp repricing could weaken not only technology shares but also business investment and consumer confidence.
“The resilience of global growth should not be mistaken for the absence of vulnerabilities.”
That vulnerability is amplified by concentration. A small number of companies, countries and infrastructure providers account for much of the AI build-out. The benefits may spread over time, but the financial obligations—power generation, chips, data centres and debt financing—are being committed now.
Energy turns geopolitics into inflation
The war’s economic effects are travelling through energy markets. A United Nations update said Brent crude had risen about 40% since February to roughly $100 a barrel, with diesel, jet fuel and heating oil increasing even more sharply.[5] The World Bank warned that a further energy surge and faster inflation could reduce growth and trigger additional financial-market stress.[6]
That creates a difficult choice for central banks. Raising interest rates may prevent an energy shock from becoming embedded in wages and expectations, but it also makes mortgages, business loans and government borrowing more expensive. Holding rates lower could protect demand, yet risks prolonging inflation. The OECD’s relatively optimistic forecast—2.9% global growth in 2026 and 3.0% in 2027—depends partly on oil prices easing in line with futures markets next year.[3]
That assumption is not guaranteed. A prolonged conflict, a closure of the Strait of Hormuz or renewed supply disruption would hit import-dependent economies hardest. Lower-income households would feel the effect first because energy and food consume a larger share of their budgets.
Debt limits the policy response
Governments are entering this shock with less fiscal space than during the pandemic. The IMF has warned that high debt leaves countries less able to cushion households or subsidise energy without worsening inflation and borrowing costs.[7] In the United States, federal net-interest outlays reached $1.052 trillion in fiscal 2026, while the deficit widened to $1.992 trillion, according to figures cited in a recent economic report.[8]
China and the United States are also at the centre of widening global imbalances. The IMF has identified both countries as major contributors to excessive current-account balances, while Chinese officials and APEC finance ministers have called for broader cooperation on trade, exchange rates and financial flows.[7] The proposals reflect a shared concern, but they have produced few concrete commitments so far.
Washington’s trade policies add another layer of uncertainty. Tariffs can protect selected industries, but they also raise input costs and invite retaliation. Beijing, meanwhile, faces the challenge of sustaining growth while domestic investment remains weak, even as its economy is forecast to grow by 4.5% in 2026.[1]
What comes next
The most likely near-term outcome is neither a clean boom nor a global recession, but a more volatile expansion. AI spending may continue to support industrial production, while energy prices and interest rates restrain households and indebted companies. The distribution of gains will matter as much as the global average: technology leaders may accelerate, while energy importers and heavily indebted economies struggle.
Three developments will determine the next phase. First, whether the Middle East conflict remains contained or widens. Second, whether AI revenues begin to validate the infrastructure spending behind them. Third, whether governments can coordinate on trade and debt without sacrificing domestic political priorities.
The optimistic case is a gradual energy stabilisation, continued productivity gains and a soft landing for inflation. The darker case is a feedback loop: war lifts energy prices, inflation delays rate cuts, high yields expose debt weaknesses, and an AI market correction removes one of the few major engines of investment.
For now, resilience is real—but conditional. The world economy is growing because technology is carrying part of the load. It will remain stable only if geopolitics, public finance and financial markets do not make that support too expensive.