Economists warn growth is narrowing as AI dependence grows
The global economy has taken it all in its stride in recent weeks, the Journal reported. Canada and the U.S. have launched what the Journal described as a “bitter trade war.” President Trump has escalated his campaign against Iran. Bond yields have surged, kindling fears of higher borrowing costs. Yet oil prices remain below $90 a barrel, stock markets are trading near recent highs, and business-activity surveys point to a summer growth spurt across advanced economies, the Journal reported.
The artificial-intelligence investment boom has emerged as the big offset to the growth squeeze from the energy crunch. Data center construction in the U.S. is pulling in semiconductors, electronics, cables, metals, and machinery from across the globe, generating export booms in countries that supply the hardware.
“We have literally a tug of war between the negative supply shock from the Middle East and the positive demand shock from AI,” Kristalina Georgieva, managing director of the International Monetary Fund, said this week. As data centers spread to more countries, AI “is becoming a growth engine for the global economy,” she said.
The trade data capture the scale. China’s exports were up by a quarter in July compared with a year earlier, the Journal reported. Japan’s exports rose 22%. Taiwan’s rose by a third. South Korea’s jumped 63%. Even Thailand reported bumper exports, and Singapore’s government upgraded its full-year growth forecast to as much as 5.5%, up from a prior 4%, citing demand for semiconductors and other AI-related components.
ING estimates that the AI frenzy accounts for roughly one-third of the U.S. economy’s recent growth, according to the Journal. The investment surge has helped offset the drag from the energy disruption that followed the February closure of the Strait of Hormuz, which came shortly after hostilities began between Iran on one side and the U.S. and Israel on the other.
The closure proved less catastrophic than many analysts initially feared. Countries drew on abundant energy reserves to replace missing shipments and diversified their purchases to new suppliers, including the U.S., the Journal reported. China, the world’s biggest oil importer, played a big role by cutting back sharply on imports.
“Chinese oil reserves have been a buffer for the whole world,” said Marieke Blom, chief economist at ING.
Other sources of cushion have helped. The global economy now extracts more GDP from each barrel of oil than it did in past decades. Many governments have shielded households from rising energy prices through subsidies and direct handouts, supporting consumption. In Europe, higher government spending on defense and infrastructure has buoyed economies still scarred by the 2022 gas-price shock that followed Russia’s invasion of Ukraine.
The IMF’s Georgieva nonetheless sounded a note of caution even as she highlighted the spreading gains from AI. The technology’s rollout and its economic effects remain uncertain, she said, and she pointed to financial-stability risks, alluding to what many investors and analysts see as a bubble in AI-related firms’ soaring stocks and expanding borrowing. She warned against complacency from policymakers too eager to concentrate economic policy around the AI basket.
That caution was echoed by other economists quoted by the Journal. “Maybe we are just living on borrowed time,” said Stefan Angrick, head of Asia-Pacific economics at Moody’s Analytics.
Max Zenglein, Asia Pacific senior economist at The Conference Board, said “growth is becoming much more narrow,” arguing that many Asian economies, China above all, remain too dependent on exports and not enough on domestic consumption. After a spell of breakneck AI-driven demand, he said, “we are reaching a point where at least we are going to see a slowdown.”