Global growth slows but AI boom helps steady outlook, say Fitch and OECD

The global economy is heading into a period of its weakest expansion since the pandemic, but both Fitch Ratings and the OECD say the outlook is slightly more resilient than previously feared, helped along by a powerful surge in artificial intelligence–related investment that is offsetting the adverse impacts of import tariffs imposed by the US.

The upgraded assessments from the two organisations suggest the world economy is cooling, yet not falling off the edge as many analysts worried about earlier in the year.

Fitch now expects the world economy to grow 2.5% in 2025 and 2.4% in 2026, nudging both figures 0.1 percentage point higher from its September outlook.

The OECD, for its part, sees global GDP slowing from 3.2% in 2025 to 2.9% in 2026 before rebounding to 3.1% in 2027.

OECD chief Mathias Cormann said the trade shocks stemming from US President Donald Trump’s tariff increases had remained relatively contained so far, but warned their economic costs were likely to grow over time.

“The full effects of those higher tariffs since the start of the year will become clearer as firms run down the inventories that they built up,” he told a press conference.

Both institutions said the upgrade reflects surprising resilience in major economies, led by the United States and parts of Europe, even as China’s momentum weakens.

US slowdown less severe than expected as AI drives spending

Fitch forecasts US GDP to grow at 1.8% in 2025, and 1.9% in 2026, revisions of more than 0.2 percentage points and 0.3 percentage points respectively from its September forecasts.

Fitch had earlier expected a more pronounced slowdown in the US, but the impact of higher tariffs has proved less severe than initially feared.

That softer shock has arrived just as private-sector investment tied to the artificial-intelligence boom has surged sharply.

“The AI revolution has prompted additional private-sector spending on a scale that is heavily cushioning the adverse impact of tariff hikes on the US economy. The robots have come to the rescue,” said Brian Coulton, Chief Economist at Fitch.

Information-technology capital expenditure accounted for nearly 90% of US economic growth in the first half of 2025, Fitch said.

Strong equity markets, fuelled in part by AI enthusiasm, are also expected to support consumption through wealth effects.

The OECD similarly lifted its 2025 US forecast to 2% from 1.8%, citing robust investment, forthcoming Federal Reserve rate cuts and fiscal support.

“AI investment, fiscal support and expected Federal Reserve rate cuts are helping offset the drag from tariffs on imported goods, reduced immigration and federal job cuts,” the OECD said.

It warned, however, that US fiscal policy is on an unsustainable path, with widening deficits likely to require significant adjustment.

Eurozone strengthens while China drags the global outlook

Better-than-expected performance in the eurozone has also supported the brighter global picture.

Fitch now projects eurozone growth of 1.4% in 2025 and 1.3% in 2026, up from earlier forecasts of 1.1% for both years.

China, however, remains a major source of global weakness.

Fitch expects Chinese growth to slow to 4.8% in 2025 and 4.1% in 2026 as declining investment, soft consumption and weaker exports continue to drag on activity.

Even with scaled-back US tariffs and expectations that Beijing will stabilise investment, the ratings agency anticipates only enough fiscal support to prevent a drop below 4 per cent growth in 2026.

China’s slowdown, Fitch said, will be the primary driver of the slight deceleration in world GDP next year.

Risks from AI-driven market optimism and trade tensions

Both Fitch and the OECD highlighted the dual nature of the AI boom: a genuine driver of investment and productivity, but also a potential source of financial-market instability.

Rapid gains in AI-related equities have sparked concerns about a bubble, but Fitch said that while US equity markets certainly look very rich on multiple valuation metrics, “the capex boom has momentum and has not yet been associated with significant increases in corporate indebtedness”.

The OECD warned that investor optimism could unwind quickly if AI advances fail to meet expectations.

It also flagged the risk of escalating trade tensions, saying global growth remains vulnerable to any new disruption.

As the world economy enters a slower phase, the combined assessments suggest that while the path ahead is far from smooth, the floor under global growth is firmer than many had assumed earlier in the year.

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