Global economy: Can growth continue in a more divided world?

Over the past several years, the global economy has weathered an extraordinary series of challenges. Inflation surged following the pandemic, central banks responded by rapidly raising policy rates, geopolitical conflicts disrupted supply chains and energy markets, and international trade became increasingly fragmented. Taken together, the world economy entered 2026 confronting an environment where growth remained positive, but risks and opportunities were becoming increasingly uneven.

Yet growth has proven more resilient than many forecasters expected. Consumers have generally continued spending, businesses have adapted to a more uncertain operating environment, and investment in areas such as artificial intelligence (AI), digital infrastructure, and advanced manufacturing has helped support activity.

At the same time, that resilience is being driven by a narrower set of forces. “Economies benefiting from technology investment, AI-related spending, or favorable energy dynamics are generally performing better than those facing higher import costs, weaker domestic demand, or more limited policy flexibility,” says Beth Ann Bovino, chief economist for U.S. Bank. As a result, the global economy appears less synchronized, with growth, inflation, and monetary policy increasingly shaped by country- and sector-specific factors.

The result is a world economy that is becoming increasingly divided. Bovino notes, “Going forward, the key questions are what will drive the next phase of expansion, how broadly the benefits will be shared, and whether today’s sources of resilience can continue to offset mounting economic, geopolitical, and financial pressures.”

Why has the global economy remained resilient?

One reason growth has remained surprisingly durable is that businesses, consumers, and policymakers spent much of the past several years adapting to earlier disruptions. Supply chains became more diversified, firms adjusted sourcing strategies and invested in efficiency-enhancing technologies, and many households entered the period of higher interest rates with relatively healthy balance sheets.

“Labor markets have also proved durable,” says Matt Schoeppner, senior economist at U.S. Bank. “While hiring slowed across many countries as interest rates rose, widespread layoffs have generally failed to materialize.” As a result, continued employment has helped sustain incomes and consumer spending, allowing household demand to remain a source of stability.

Investment has provided another important source of support. Spending on infrastructure, energy projects, and manufacturing capacity has remained relatively robust across many regions, helping offset weakness in more interest-rate-sensitive sectors. Increasingly, however, a massive wave of investment tied to AI technologies, data centers, semiconductor production, and cloud computing has emerged as an additional growth driver. Schoeppner notes, “The enormous scale of that investment is providing a meaningful boost to economic activity, while potentially laying the foundation for stronger productivity growth in the years ahead.”

These developments are helping support a constructive outlook for the global economy. The International Monetary Fund (IMF) currently projects global growth of 3.1% in 2026 and 3.4% in 2027.¹ Yet beneath those encouraging headline figures, some of the same forces supporting global growth are contributing to increasingly uneven economic outcomes across countries, industries, and regions.

A growing divide in the global economy

Technology and energy have emerged as two of the most important fault lines in the global economy. The benefits of the AI investment boom are accruing disproportionately to economies tied to technology development and production, while differences in energy exposure are pulling economies in different directions.

“Technology-related investment is becoming an important economic differentiator,” says Bovino. “Countries connected to AI development, semiconductor production, cloud computing, and related supply chains are benefiting from stronger investment flows and, in many cases, stronger economic performance.”

The United States, South Korea, Taiwan, and several other economies integrated into technology supply chains have benefited from rising demand for advanced computing capacity and data-center construction. Those investment flows are also spilling into other parts of the economy, supporting demand for construction, manufacturing, transportation, energy, and a wide range of business services.

Energy exposure represents another important dividing line. Energy-producing economies, including several countries in the Middle East and parts of North America, have benefited from higher energy prices and continued investment in production capacity. By contrast, many energy-importing economies in Europe and Asia remain more vulnerable to elevated fuel costs and the resulting pressure on households and businesses. Higher energy costs can erode purchasing power, increase operating expenses, and complicate efforts to return inflation to target.

“The global economy is still expanding,” notes Bovino, “but the drivers of that expansion are becoming increasingly concentrated. Some regions are benefiting from powerful investment and innovation trends, while others continue to face stronger cost pressures and slower growth.”

AI investment reshapes the global growth story

Few developments are having a greater influence on the global economy than the rapid buildout of artificial intelligence (AI). Companies around the world are investing heavily in the computing power, facilities, and supporting infrastructure needed to develop and deploy increasingly sophisticated AI systems.

“This is unlike many previous technology cycles because of its scale,” says Schoeppner. “Building AI capacity requires enormous investments in equipment, energy, and computing resources, creating economic activity well beyond the technology sector itself.”

What makes the current cycle particularly significant is its physical footprint. Expanding AI capabilities requires new data centers, electricity generation, semiconductor fabrication facilities, and communications networks. As a result, the effects are being felt across a wide range of industries, from utilities and industrial production to commercial construction and logistics.

The longer-term implications may prove even more important. While today’s economic impact stems largely from the investment itself, businesses ultimately expect AI to improve efficiency, enhance productivity, and unlock new capabilities. “The investment boom is creating demand today,” notes Schoeppner, “but the larger question is how much productivity it can generate tomorrow.” The answer could help determine the strength and durability of global growth in the years ahead. It also creates a potential vulnerability if expectations for AI investment or its eventual returns prove overly optimistic.

Inflation’s final stretch remains challenging

TWhile global inflation has moderated significantly from the peaks reached in recent years, the final stage of returning inflation to central bank targets has proven more difficult. Energy prices remain an important source of volatility, while persistent services inflation and labor costs continue to keep underlying price pressures elevated in many economies.

“Inflation is moving in the right direction, but the path back to target has been drawn out and less predictable,” says Bovino. “Many economies have made substantial progress, yet policymakers remain concerned about new sources of inflation pressure emerging before the job is fully complete.”

The IMF expects global inflation to remain elevated in 2026 before easing in 2027, reinforcing the likelihood of a gradual and uneven return toward central bank targets.¹ For businesses and households, that may mean adjusting to an environment where the rapid price increases of recent years are fading, but the cumulative impact of inflation continues to keep costs, budgets, and borrowing decisions under pressure.

Why central banks face a more complicated environment

Inflation has moderated considerably, but uneven progress toward central bank targets is leaving policymakers with a more difficult balancing act between supporting economic growth, maintaining price stability, and preserving financial stability.

“Many central banks are no longer confronting the same set of challenges,” says Schoeppner. “Inflation, growth, labor market conditions, and financial risks vary considerably from one country to another, making policymaking increasingly complex.” As a result, central banks are beginning to follow different policy paths.

At the same time, policymakers are contending with a financial environment that looks very different from the decade preceding the pandemic. Government borrowing needs remain elevated in many countries, long-term interest rates have risen in recent months, and investors are demanding greater compensation to hold longer-dated debt. Those forces are helping keep financial conditions relatively restrictive, even in places where central banks may be nearing the end of their inflation-fighting campaigns. High debt burdens may also leave some governments with less room to respond to future economic shocks.

For businesses and households, that could mean borrowing costs remain higher for longer than previously expected. “The policy conversation is increasingly shifting from how much further central banks need to go,” notes Schoeppner, “to how long interest rates may need to remain restrictive to ensure inflation continues moving toward target.”

Regional outlook: Different paths through the same economy

While global growth remains positive, the global economic outlook varies considerably across regions. Differences in energy exposure, technology investment, domestic demand, and policy flexibility are creating distinct economic paths, even as countries navigate many of the same global challenges.

The U.S. remains relatively well positioned. Resilient consumer spending, healthy labor markets, and substantial business investment have helped support growth. The country has also emerged as a major beneficiary of the rapid expansion in AI-related investment, with immense spending on data centers, advanced computing capacity, and related infrastructure providing an additional source of economic momentum.

Europe faces a more challenging backdrop. Greater sensitivity to imported energy costs, slower economic growth, and lingering inflation pressures have complicated the region’s outlook. While Europe is investing in and adopting AI, it has so far captured less of the investment boom than the United States, providing a smaller near-term boost to growth. Businesses and households also remain more exposed to fluctuations in energy prices and weaker domestic demand than many of their U.S. counterparts.

China’s economy continues to present a mixed picture. Advanced manufacturing, technology investment, and exports have provided areas of strength, but those gains have been tempered by ongoing weakness in the property sector and softer domestic demand. As a result, China’s contribution to global growth looks markedly different from the housing-led expansion that characterized earlier decades.

Elsewhere in Asia, outcomes are becoming increasingly varied. South Korea and Taiwan have been among the region’s clearest beneficiaries of the technology investment cycle, reflecting their important roles in semiconductor and advanced computing supply chains. By contrast, several energy-importing economies remain more vulnerable to higher operating costs and external shocks.

“There is no longer a single global growth story,” says Schoeppner. “Countries are entering the next phase of expansion from very different starting points, with increasingly different opportunities and challenges.”

Bottom line: What this means for businesses

Despite the challenges facing the world economy, opportunities for growth remain. However, the business environment is becoming increasingly complex. Differences in regional growth prospects, financing conditions, energy costs, and investment trends mean that broad global trends may be less useful than understanding the specific markets, industries, and customers that matter most.

“The global economy is becoming more differentiated,” says Bovino. “Companies that remain flexible and responsive to changing conditions will likely be better positioned to navigate an environment where opportunities and risks vary considerably across regions and industries.”

At the same time, businesses may need to plan for a future in which borrowing costs remain higher than they were before the pandemic, geopolitical developments continue to influence supply chains and operating costs, and productivity becomes an increasingly important source of competitive advantage. “The next phase of expansion will likely reward adaptability,” notes Schoeppner. “Understanding where demand is emerging, where investment is flowing, and where conditions are changing may become just as important as understanding the overall direction of big macro indicators.”