In its latest Global Outlook: Running Hot, Running Cold, Moody’s Analytics said the global economy is entering a slower phase as geopolitical conflicts, trade disruptions and sticky inflation weigh on activity. While India is expected to remain among the world’s fastest-growing major economies, the report noted that “India will lose a step, too.”
AI boom cushions the slowdown
The report said the artificial intelligence investment cycle has emerged as the biggest counterweight to the global slowdown.
Also Read: IMF lowers 2026 global growth outlook to 3%, projects 3.4% growth in 2027
“The artificial intelligence boom has prevented a steeper downturn,” it said, noting that strong demand for AI has driven investment in semiconductors, data centres and computing infrastructure, while lifting exports across Asia’s technology-intensive economies.
According to Moody’s Analytics, the benefits of the AI boom have been uneven, creating a “K-shaped world economy” where countries and industries integrated into the technology value chain continue to outperform those grappling with higher energy costs and weaker demand.
“The result is a K-shaped world economy where some countries and industries race ahead while others fall behind,” the report said.The report said the Middle East conflict has fuelled inflation through higher energy and food prices, while uncertainty around US tariff policy and renewed trade tensions continue to add to downside risks. It warned that central banks now face a more difficult policy trade-off as tighter monetary policy may curb already weak demand without addressing supply-driven inflation.
Moody’s Analytics said it expects US GDP growth to average 2% in 2026 and 2027, while Chinese growth is projected to slow to 4.6% this year and 4.2% next year. Global growth, meanwhile, is expected to remain below the 3%-plus pace the world economy is capable of achieving over the medium term.
Despite the resilience shown so far, the report cautioned that risks remain firmly tilted to the downside.
“The world economy is unlikely to derail. But uncertainty around the baseline forecast runs high, and it would not take much to tip the trajectory towards a sharper slowdown, or even a recession,” it said.
Also Read: World Bank cuts global growth forecast to 2.5%; India seen growing 6.6% amid Iran war
Earlier this month, the International Monetary Fund (IMF) lowered its global growth forecast for 2026 to 3% from 3.1%, saying rapid AI adoption had partly offset the economic impact of the Middle East conflict. Earlier this year, the World Bank also cut its 2026 global growth forecast to 2.5%, citing higher energy prices and uncertainty stemming from the Iran conflict as key drags on the global economy.