Growth Holds, Risks Widen

Global growth should remain resilient over the next six to 12 months, but its benign outlook depends on three increasingly interconnected buffers that create wider downside risks.

• Geopolitical fragmentation, higher energy prices and tariffs have so far produced limited spillovers into core inflation and wages, while China remains weaker because of its housing downturn, soft domestic demand and excess manufacturing capacity.
• The first buffer is an AI-led capital-spending boom, described as comparable to the 1990s telecom and internet buildout but faster; hyperscalers are increasingly using debt issuance and off-balance-sheet commitments to finance infrastructure.
• The second buffer is the ability of households and China to absorb higher energy costs: consumers are drawing down savings, while China is accepting weaker margins, reducing inventories and shifting demand toward renewables.
• The third buffer is incremental central-bank policy, with wage and unit-labor-cost pressures moderating, long-term inflation expectations anchored, and much of the expected tightening already reflected in market pricing.
• The main risks are a slowdown in AI investment, a more severe Middle East energy shock, or an abrupt tightening in financial conditions; high debt-to-GDP ratios also leave the U.S. and France with particularly challenging fiscal trajectories, although the authors view most developed-market sovereign debt as sustainable.

Takeaway: The baseline favors stable growth, moderating inflation and supportive conditions for bonds, but investors should seek high starting yields, diversify globally and remain selective in credit and AI-related exposures because valuations may not fully reflect the risks.