Global growth swings between geopolitical shocks and the AI dividend: why “low recession, high volatility” may become the new normal

The Real Problem with the Global Economy: Not Whether It Will Recede, but in What Way It Will Slow

The signal from the World Economic Forum’s latest Chief Economists Survey is not that “the global economy is about to plunge into a deep recession,” but something more difficult to manage: slower growth, rising inflation, narrowing policy space, and higher financial market volatility. This is a classic pattern of “low recession probability, high uncertainty,” and it also looks more like a transitional phase before the global economy enters a new cycle.

The survey shows that nearly 90% of chief economists expect global growth to weaken over the next 12 months; at the same time, 94% expect global inflation to rise. Taken together, these two judgments mean that markets are facing not simply weak demand, but a reassertion of supply-side shocks and policy constraints over the traditional logic of recovery.

This combination is particularly unfavorable for a coordinated global economic recovery. When growth pressure comes mainly from external shocks rather than internal imbalances, central banks cannot rapidly ease policy as they would in response to a demand collapse, nor can fiscal stimulus alone smooth the transition. The result is often: a slower, longer, and more uneven economic slowdown.

Why the Middle East Shock Matters: It Reopens the Old Wound of “Energy Inflation”

The core trigger for this deterioration is the situation in the Middle East and the energy and supply-chain risks brought by the closure of the Strait of Hormuz. For the global macroeconomy, the Strait of Hormuz is not an abstract term in geopolitical news, but a key node in the energy pricing system. As long as this corridor remains unstable, oil prices, shipping insurance, transit times, and inventory strategies will all shift in tandem.

Its macroeconomic consequences are not limited to energy itself. Rising energy prices are transmitted through three channels:

1. Directly lifting inflation, especially in transportation, industrial goods, and food prices; 2. Squeezing corporate profit margins, weakening pricing power in manufacturing and services; 3. Forcing central banks to maintain a tighter interest-rate environment, thereby delaying global credit recovery.

This is also why most economists in the survey believe the current shock is now significantly more damaging than last year’s tariff disruptions. Tariff shocks mainly alter trade costs, whereas an energy shock simultaneously changes inflation, consumption, inventories, shipping, and capital market risk appetite. It is closer to a “whole-chain disturbance.”

If this disturbance continues into the second half of the year, the downside to global growth may no longer be just a short-term correction, but a chain reaction that squeezes business investment, household consumption, and external financing conditions in emerging markets.

The Danger of This Inflation Rebound Is That It Is Happening in a High-Debt World

Unlike the previous inflation cycle, today’s global economy is not absorbing shocks in a low-leverage environment. After the pandemic, developed economies and emerging markets alike have accumulated higher public debt, while the corporate sector has built up a more fragile financing structure, especially in private credit, leveraged loans, and non-bank financing areas.This explains why 79% of respondents in the survey expect volatility in the private debt market to rise over the next year, and 74% expect volatility in the public debt market to rise. Although interest rates have eased somewhat from the peak of the last tightening cycle, the refinancing pressure on the global stock of debt has not disappeared. As long as inflation re-accelerates, central banks will face the risk of staying “higher for longer” for an extended period.

This is especially unfavorable for economies with limited fiscal space. In a high-debt environment, an inflation shock can quickly turn what was originally just a cyclical problem into a financing sustainability problem. In other words, inflation is not just a price issue; it is also an amplifier of fiscal and debt constraints.

What central banks find hardest is not whether to raise or cut rates, but how to respond to “supply-side stagflation”

This round of global economic divergence once again shows that central bank policy has entered a more complex phase. If a slowdown stems from insufficient demand, rate cuts can provide some cushioning; but if it is related to energy shocks and supply-chain disruptions, easing too quickly may instead intensify inflation expectations.

This is also why Europe’s situation is particularly sensitive. Europe is more dependent on external energy, and its manufacturing outlook is more easily affected by imported cost shocks. Once weak growth and a renewed rise in inflation occur at the same time, the ECB will face a classic stagflation trade-off: easing too early would weaken its anti-inflation credibility, while keeping policy relatively tight would deepen growth pressures.

The fundamental reason the United States and India are still seen as relatively more resilient economies is not just that their short-term data are better, but that they have stronger buffers in domestic demand structure, capital inflows, and policy transmission. The United States continues to benefit from strong consumption and investment support, while India continues to enjoy a relatively solid domestic-demand base and capital-expenditure cycle.

This divergence means that global monetary policy is moving toward a new asymmetric state: the same external shock will trigger completely different policy responses in different economies. This is precisely the source of greater volatility in global exchange rates and capital flows in the years ahead.

Emerging markets face not a single pressure, but a threefold squeeze

For emerging markets, energy inflation, U.S. dollar rates, and a decline in global risk appetite usually occur at the same time. The survey shows that inflation expectations in sub-Saharan Africa have risen to the highest among all regions, which is not surprising, as the region is more sensitive to food and energy imports and has weaker fiscal buffers.

The threefold squeeze facing emerging markets includes:

• Rising import bills: higher energy and food prices widen current-account pressures;
• Exchange-rate pressure: when global risk aversion rises, capital often flows into dollar assets;
• Higher financing costs: countries with higher external rates and shorter debt-refinancing maturities face greater risk.

Against this backdrop, so-called “global inflation upside” is not just a problem of core inflation in Europe and the U.S.; it may also reshape the policy rhythm of emerging markets. Many central banks may have to place stabilizing exchange rates and preventing capital outflows ahead of stimulating growth.## AI is still part of the growth narrative, but it is more of a medium-term variable than an immediate tool for hedging shocks

The other most notable takeaway from the survey is that 92% of chief economists expect AI adoption to continue expanding over the next year. This shows that the direction of technological diffusion has not changed, and market confidence in AI as a long-term productivity engine remains intact.

But the key shift is this: the productivity gains from AI are widely expected to materialize later than anticipated at the start of the year. That means AI may still be a structural positive, but it is not enough to offset geopolitical shocks, rising inflation, and tighter financing conditions in the short term.

From an industry perspective, the benefits of AI will not be distributed evenly either. Expectations remain relatively stable in information technology and education, but the timing of productivity gains in sectors such as engineering, construction, utilities, and healthcare and care services has been pushed back significantly. This suggests that AI is not a universal variable that can immediately and broadly replace labor and cost pressures; it depends more on data infrastructure, process reengineering, and the regulatory environment.

At the macro level, this is especially important. If the AI dividend mainly appears in the medium to long term, while energy shocks and fiscal pressures are immediate, then the global economy will for a period be in a state where old problems hit first, and new growth arrives later.

Why this may be the beginning of a new long-term cycle

Viewed over a longer cycle, the global economy is moving away from two key anchors of the past decade or so:

• the latter half of the era of low inflation, low interest rates, and low volatility under globalization;
• a growth model reliant on supply-chain efficiency and the free flow of cross-border capital.

Now, geopolitics is reshaping trade routes, energy is repricing risk, debt is redefining policy boundaries, and AI may become a new source of productivity. The problem is that these four forces are not moving in sync.

As a result, the global macro environment over the next few years is more likely to display the following features:

• the growth center shifts lower, but not necessarily into a full-blown recession;
• inflation is more easily reignited by supply-side shocks;
• central banks will struggle to return quickly to the era of ultra-loose policy;
• capital is more likely to flow toward economies with stronger structural resilience;
• regional divergence intensifies, and global arbitrage opportunities shrink.

This means the global economy is shifting from “synchronized expansion” to “divergent repair,” from “demand-led” to “supply-constrained,” and from “macro-policy-led” to being jointly shaped by geopolitics and technology.

Conclusion: what markets should fear most is not recession, but volatility becoming the norm

The most important signal in the current chief economists’ survey may not be that “the probability of a global recession remains low,” but rather that “the stability of the global economy is declining.” In an environment where energy shocks, debt pressures, trade frictions, and technological leaps coexist, markets can no longer rely on a single variable to judge the direction of the cycle.

The key in the future is not to predict whether a one-off shock will pass, but to understand whether the global economy is entering a more common state: growth is not bad, but it is unstable; inflation is not high, but it is prone to flare up again; AI matters a lot, but its payoff is slower; risk is not concentrated, but it remains persistent.In such a world, the focus of macro judgment has changed: it is no longer about looking for a return to the old equilibrium, but about identifying the formation of a new one.