AI Spending Bolsters Global Economy Amid Trade War Threats

Investment in artificial intelligence has helped the global economy demonstrate resilience against rising tariffs and trade tensions, according to a director at the International Monetary Fund (IMF). Jihad Azour, director of the IMF’s Middle East and Central Asia Department, stated this at Abu Dhabi Finance Week. He noted that the inflationary impact of higher tariffs has been relatively muted.

Credit: International Monetary Fund

The global economy showed strength and flexibility, with trade rules adjusting quickly to trade shocks. An IMF report earlier in the year highlighted that the impact of the trade war was less than anticipated, partly because the US negotiated trade deals and provided exemptions.

Mr. Azour attributed this resilience significantly to increased AI investment worldwide, particularly within the United States. This trend helped mute the broader economic fallout from the trade disputes.

The Washington-based fund projects global growth of 3.2% this year, and 3.1% next year. These figures are higher than its April projections made when the trade war had just started.

Worldwide spending on AI is forecast to reach nearly USD 1.5 trillion in 2025, marking a 50% increase. Business intelligence firm Gartner expects this figure to surpass USD 2 trillion next year.

Major economies have invested in substantial AI infrastructure projects. These include the US’ Stargate initiative, China’s "Eastern Data, Western Computing" strategy, and the UAE’s Stargate project, which involves OpenAI, Oracle, and Nvidia.

Gulf countries, including the UAE, are set to benefit from both their own AI investments and contributions from other nations into key projects such as data centres. China currently has the highest electricity demand for powering data centres, followed by the United States, and India.

However, Mr. Azour cautioned about a potential "decoupling between the valuation and the price of assets in the technology arena," referencing concerns about an AI bubble. He also warned that global uncertainty would persist into 2026.

This ongoing uncertainty could potentially reduce economic growth by as much as 2% of gross domestic product over a two-year period in certain cases. The long-term implications of these trends require careful monitoring.

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• AI investment, especially in the US, has helped the global economy remain resilient against trade wars and rising tariffs.

• The IMF projects global growth of 3.2% this year and 3.1% next year, exceeding earlier forecasts.

• Global AI spending is expected to reach nearly USD 1.5 trillion in 2025, growing to over USD 2 trillion next year.

Source: SCMP