The world economy ignores the tariff shock
The International Monetary Fund (IMF) stated on Monday that the global economy has demonstrated “notable resilience” in the face of severe trade disruptions driven by the United States and increased uncertainty. Growth is expected to remain stable at 3.3% in 2026.
According to the IMF, as the global economy “shakes off the immediate impact of the tariff shock,” aided by a reduction in trade tensions and robust investment driven by technology, global growth has remained largely constant from a year ago.
The IMF stated that, the most recent estimates show an increase of 0.2 percentage points over October forecasts, with China and the United States accounting for the majority of the improvement. Global growth is expected to reach 3.2% in 2027 and 3.3% in 2026.
Increased investment in information technology, especially artificial intelligence, has been a major factor in resilience.
According to the IMF, the proportion of US economic output devoted to IT investment has increased to its highest level since 2001, significantly boosting corporate activity and investment with favorable effects on international commerce, particularly technology exports from Asia.
According to the research, growing stock prices and new capital expenditures have been supported by favorable financial circumstances and strong profitability, even though manufacturing activity is still muted.
The IMF warned, meanwhile, that a greater reliance on debt financing has increased leverage, which might exacerbate shocks if returns don’t materialize or financial conditions tighten.
According to the Fund, as frequent equipment upgrades reduce margins and need more borrowing, profitability in the technology sector may also become susceptible to depreciation estimates for sophisticated processors.
The IMF compared the present tech bubble to the dot-com era, stating that potential overvaluation in US equity markets is “only about half that of the dot-com episode,” but cautioned that vulnerabilities still exist because gains are concentrated in a small number of AI-related enterprises.
Even as the technological boom promotes GDP in the short term, the IMF has also warned that the world economy’s increasing reliance on investments powered by artificial intelligence could expose markets to new shocks.
The IMF noted in its blog that significant investments in information technology, especially artificial intelligence, have contributed to the current expansion, but cautioned that expectations on future returns may prove brittle.
“A significant decline in real investment in the high-tech sector, as well as in spending on AI adoption in other sectors, and a more prolonged correction in stock market valuations — which have increasingly been lifted by only a few technology firms — could ensue if expectations about AI-driven productivity gains turn out to be overly optimistic and outcomes disappoint,” it stated.
The IMF claims that quick adoption of AI might greatly increase productivity and improve medium-term development prospects sooner rather than later. This could be made possible by the continuous boom in AI-related investment in both physical and soft infrastructure.
The rapid rate of invention may encourage innovative destruction and revitalize business activity. Accordingly, depending on the rate of adoption and advancements in global AI preparedness, global growth might be boosted by up to 0.3 percentage points in 2026 and by 0.1–0.8 percentage points annually in the medium term.
According to the report, if complementary policies are in place to manage workforce transitions, scale up the necessary critical intermediate inputs, and relax power supply constraints to contain the potential impact on energy prices, the benefits could be distributed throughout the economy.
According to the Fund, positive financial conditions have fueled significant increases in stock prices and corporate investment due to confidence in AI’s potential. Since late 2022, the introduction of popular generative-AI tools has coincided with a sharp increase in equities markets.
The IMF cautioned, however, that the expansion is increasingly being financed by debt financing, creating leverage in some areas of the IT industry. It stated that if financial conditions tighten or earnings fall short, higher leverage could increase the severity of shocks.
According to the survey, companies may find their profit margins squeezed by frequent upgrades of sophisticated processors due to increased financing requirements and faster depreciation. The IMF claims that these pressures demonstrate how important it is to monitor vulnerabilities associated with the rate of investment.
The IMF claimed that although the increase has been more gradual, IT investment as a percentage of output is already at levels comparable to the dot-com boom of the late 1990s.
The Fund stated that potential overvaluation in the US is roughly half of what it was during the dot-com crisis, despite the fact that market valuations have also soared.
Risks are still high, though. According to the IMF, a small number of AI-related companies have been the main drivers of equities market gains, making overall growth more vulnerable to a shift in attitude. It also highlighted the increasing significance of unlisted AI companies, whose borrowing may pose dangers not seen in previous cycles.
As a point of comparison, the IMF stated that a scenario described in its October 2025 outlook, which included tighter financial conditions and a moderate correction in AI stock values, would lower global growth by 0.4 percentage points compared to the baseline.
