AI Is Keeping the Global Economy Afloat. The Investment Craze Is Helping Offset the Iran War.
The global economy is showing surprising resilience in the face of geopolitical turmoil and rising borrowing costs, and a massive wave of investment in artificial intelligence may be one of the biggest reasons why.
According to a Wall Street Journal report, the AI boom is increasingly acting as a global economic counterweight, driving investment in the United States, boosting technology exports across Asia and helping advanced economies absorb shocks that might otherwise have produced a much sharper slowdown.
The U.S. and Canada have entered a bitter trade dispute, President Donald Trump has intensified his campaign against Iran, and bond yields have climbed, increasing borrowing costs for governments, businesses and consumers.
Yet markets and economic activity have held up. Oil remains below $90 a barrel, stock markets are trading near recent highs, global trade remains relatively strong, and business surveys indicate that advanced economies experienced a growth spurt over the summer.
At the center of that strength is an extraordinary investment cycle around AI. Companies are pouring billions of dollars into data centers, semiconductors, servers, electricity infrastructure and other equipment required to build and operate increasingly powerful AI systems. That spending is supporting the U.S. economy directly while creating another powerful source of demand for Asian economies that manufacture chips and other technology components.
“We have literally a tug of war between the negative supply shock from the Middle East and the positive demand shock from AI,” International Monetary Fund Managing Director Kristalina Georgieva told reporters this week. As data centers spread into more countries, AI “is becoming a growth engine for the global economy,” Georgieva said.
The AI investment wave has become especially important because the global economy is simultaneously dealing with an energy shock stemming from the Middle East. The closure of the Strait of Hormuz following the outbreak of hostilities involving Iran, the United States and Israel in February initially raised fears of a severe global energy crisis. So far, however, the consequences have been less catastrophic than some analysts expected.
Countries have tapped energy reserves and shifted purchases toward alternative suppliers, including the United States. China has also played an important role. As the world’s largest oil importer, it has sharply reduced its purchases, helping restrain global demand and prices.
“Chinese oil reserves have been a buffer for the whole world,” Marieke Blom, chief economist at ING, told the Journal. Other structural changes have helped. Economies have become more efficient at extracting economic output from each barrel of oil, while governments have used subsidies and financial assistance to protect households from higher energy costs.
Europe has received another cushion from increased government spending on defense and infrastructure. Those expenditures have supported economies that were already damaged by the 2022 energy crisis triggered by Russia’s invasion of Ukraine.
But AI has emerged as perhaps the most important new source of demand. That makes the durability of the boom increasingly important for the broader global outlook. If corporations continue spending heavily on data centers, chips and computing infrastructure, AI investment could continue offsetting some of the drag from energy disruptions, trade conflicts and higher interest rates.
If the investment cycle suddenly weakens, however, the global economy could lose one of its strongest supports at precisely the wrong moment. “Maybe we are just living on borrowed time,” Stefan Angrick, head of Asia-Pacific Economics at Moody’s Analytics, told the Journal.
