Global Economy Slows as Inflation Surges and Tech Giants Bet Big on AI
The global economy faces slower growth and rising inflation as energy shocks and geopolitical tensions take their toll. New forecasts from the OECD show higher prices cutting into consumer spending and business costs. Meanwhile, major tech firms like Alphabet are pouring billions into AI, betting on long-term expansion despite short-term financial pressures. Global economic growth is set to weaken further in 2026, dropping from 3.3 per cent last year to 2.9 per cent. The OECD blames the slowdown on surging energy prices and the fallout from the Middle East conflict, which wiped out an earlier 0.3 percentage point upgrade in GDP projections. If oil reaches $135 a barrel in the second quarter, output could shrink by an additional 0.5 per cent.
Inflation is also climbing sharply. The G20's headline rate has been revised up by 1.2 percentage points to 4 per cent in 2026. The US will see prices jump from 2.6 per cent in 2025, while China, South Korea, and India face similar spikes. Higher costs for businesses and squeezed household budgets will drag down US growth to 2 per cent this year and 1.7 per cent in 2027. The eurozone fares little better, with expansion of just 0.8 per cent in 2024 before a modest recovery to 1.2 per cent next year.
Against this backdrop, tech giants are doubling down on AI. Alphabet plans to spend between $175 billion and $185 billion on AI infrastructure in 2026—far above the $120 billion analysts had predicted. The move signals confidence in AI's future, even as short-term profits suffer. Germany, too, is pushing ahead with its own industrial strategy, investing heavily in AI and semiconductors to stay competitive. The OECD's latest report paints a challenging picture for 2026, with energy-driven inflation and weaker demand holding back growth. Recovery is expected to remain sluggish, particularly in the US and eurozone. At the same time, massive AI investments by companies like Alphabet highlight a shift toward long-term technological bets, despite immediate economic headwinds.
