AI Boom Fuels Global Growth Amid Energy Price and Inflation Challenges

The global economy is maintaining steady growth despite challenges from higher energy prices, inflation, and rising interest rates. The artificial intelligence (AI) boom is playing a key role in supporting this growth, with real global GDP projected to rise 3.2 percent in 2026 and 3.1 percent in 2027, according to the Peterson Institute for International Economics. The US economy remains robust, driven by strong consumer spending and business investment, with real GDP expected to grow 2.3 percent this year and 2.2 percent next year.

Higher energy prices, particularly due to the war in Iran, have significantly impacted global markets. Brent crude oil prices have surged to around $100 per barrel, nearly 40 percent above pre-war levels. While energy prices are expected to gradually decline, the recent increases have contributed to higher inflation and prompted central banks, including the US Federal Reserve, to raise interest rates. The Fed is likely to implement three more quarter-point rate hikes by March, aiming to cool inflation and maintain credibility.

In the US, private demand remains strong, with household wealth fueled by AI optimism supporting consumer spending. Business investment has also surged, driven by AI-related spending on equipment. However, the fiscal outlook is a concern, with rising federal debt and interest payments relative to GDP. While a fiscal crisis is not imminent, the long-term sustainability of the US fiscal outlook is under scrutiny.

Emerging markets present a mixed outlook. India continues to lead with strong domestic demand, while China faces weak domestic demand and a property slump. Russia's economy remains constrained by sanctions, and Brazil's growth is expected to slow as commodity prices fade. Among advanced economies, the euro area and Japan are projected to see modest growth, with the UK benefiting from technology investment.