The global economy is running at two speeds – economies plugged into the artificial intelligence (AI) boom are racing ahead; those with weaker links to AI are struggling under geopolitical upheaval, trade conflict, and policy uncertainty, Moody’s Analytics said on Tuesday.
The rating agency said in a note that the world economy is travelling at two speeds, with one half is outpacing forecasts, thanks to the AI boom, which has poured money into data centers, lifted exports across Asia’s tech-heavy economies, and driven stock valuations higher the world over.
The other half, however is struggling. Economies and industries with weaker links to AI have been dragged down by geopolitical upheaval and trade disruptions—from the Middle East conflict to friction between the U.S. and its trading partners—that have driven up prices and the cost of doing business.
“The result is a K-shaped world economy where some countries and industries sprint ahead while others slip back,
“Overall, global gross domestic product (GDP) growth will likely slow in 2026, but by less than we feared at the start of the year,” said Moody’s.
According to Moody’s, a key reason the world economy has avoided a sharper slowdown is the AI boom.
A steady stream of new AI models has pulled fresh capital into chips, power, and computing, driving stock prices skyward and sparking a global capital expenditure spree, it noted.
“Pinning down how much this adds to headline GDP is tricky. GDP counts domestic production, and because most countries import the hardware that fills their data centers, rising imports cancel much of the extra investment, so the net lift to top-line GDP is modest,
“But the Asia-Pacific region, where the world makes its chips and hardware, is different. There, the boom feeds straight into output and exports,” it said.
The list of things that could trip up the global economy is long, with the Middle East conflict is a top concern, said Moody’s.
“We assume the fighting will wind down. But the reopening of the strait will be a slow process, and setbacks are likely. Even if commodity flows return to something like their pre-conflict norms, the economic damage is done. Inflation has picked up,” it added.
While an end to the conflict should keep the pickup transitory, it sees tighter monetary policy will hit business and consumer spending.
Meanwhile, it noted Washington is swinging the tariff hammer again, with levies run from 10 percent to 12.5 percent, targeting economies that failed to “impose and effectively enforce a prohibition on the importation of goods produced with forced labor.”
The new regime, which replaces Section 122 tariffs, has three tiers: a 10 percent rate for economies with a partly enforced ban or reciprocal commitments, a 10 percent or 12.5 percent rate for economies holding trade deals with the U.S., and a 12.5 percent rate for everyone else in the group of 60.
“A long list of carve-outs applies, though, covering semiconductor chips and car parts that would cause economywide disruption in the U.S. For tech exporters, that exemption matters enormously,” said Moody’s
For Asia, where most of the world’s export surpluses sit, the rating agency said this means that effective tariff rates largely fall from where they sat at the start of the year, before February’s U.S. Supreme Court ruling struck down the tariffs the White House had imposed under emergency powers.
According to the rating agency, China’s effective rate edges up to 23.4 percent from 21.3 percent under the stopgap regime, still shy of the 29.7 percent it faced before the court stepped in.
With President Xi Jinping due to visit the U.S. in September and both sides floating reciprocal tariff cuts, tariffs now look like a fixture of trade rather than a passing phase, it added.
Overall, Moody’s expects global GDP to grow 2.5 percent in 2026 and 2.8 percent in 2027, both below the 3 percent-plus pace the world could manage.
Part of the slowdown reflects softer U.S. growth, which is set to average just north of 2 percent in 2026 and 2027.
This is short of the 2.5 percent U.S. potential and the 3 percent-or-so pace of 2023 and 2024.
“Weaker growth elsewhere explains the rest. Chinese growth will slow to 4.6 percent in 2026 and 4.3 percent in 2027, and India will miss a step,” said the rating agency.
It sees Euro zone growth will slip to 0.9 percent in 2026 before picking up to 1.6 percent in 2027.
Japanese growth will average less than 0.5 percent in both years, as higher commodity prices, a fading AI boom, and trade friction add drag.
“With the AI boom papering over the strain from higher inflation and tight policy, the risks facing the baseline forecast tilt firmly to the downside. Geopolitics tops the list,” said Moody’s.
With geopolitical and trade shocks scrambling the outlook for growth and inflation, it sees central banks are walking the tightrope.
“A pickup in inflation, even a temporary one, supports the case for tighter policy, especially where the AI boom has left growth hot and asset prices stretched,” said Moody’s.
It opined that policymakers also want to dodge the charge of falling behind the curve.
Some critics have argued that central banks were too slow to tighten when post-pandemic reopening and Russia’s invasion of Ukraine sent inflation soaring.