Major economies are defying the Middle East energy shock as surging AI spending helps sustain growth, according to research for the Financial Times. Real activity in the US, China and India is continuing to withstand high fuel prices, with indicators pointing to firm output growth this year, according to the latest Brookings-FT Tracking Indexes for the Global Economic Recovery, or Tiger.
However, "worrying omens" lurk behind the surprisingly robust GDP indicators, the analysis found, given persistent inflationary pressures and rising public debt. Eswar Prasad, a professor at Cornell University and senior fellow at the Brookings Institution, said: "The world economy has shaken off a series of setbacks and appears set for a year of solid growth." He added that the key challenge for policymakers is their shrinking room for manoeuvre as persistently high inflation and fiscal profligacy keep yields on government debt elevated.
Spikes in oil prices above $100 a barrel after the US-led attacks on Iran in February have reignited inflation in leading economies, though reserve drawdowns have cushioned businesses and households. The US, driven by its booming IT sector, is sustaining the expansion. German growth has been firmer than expected thanks to debt-fuelled infrastructure and military spending, while France is languishing amid debt sustainability concerns. The IMF will update global growth forecasts, which in July pointed to expansion of at least 3 per cent this year and next.
India stands out among emerging economies, with the central bank predicting 7.1 per cent growth for the fiscal year, while China remains reliant on external demand. Poorer net importers of oil and gas are badly exposed to the energy shock, and surging petrol prices are intensifying political pressure on the Republicans ahead of the midterm elections. Meanwhile, a brutal sell-off in global government bonds has pushed borrowing costs to multi-decade highs, with the US 10-year yield reaching its highest level since 2002.
Source: Financial Times Markets · Summarized by HeadlinesBriefing