The Global Economy’s Tenuous Balance: Resilience Amid Uncertainty

Global growth should remain resilient despite intensifying inflation, fiscal, geopolitical and artificial-intelligence-related risks, but central banks are likely to keep tightening policy.

• Citi expects global GDP growth of 2.7% this year and 2.8% next year, supported by continued U.S. strength, resilient services, firm labor markets and stronger Asian growth.
• Global manufacturing is improving through electronics and AI-related investment, while Taiwan and South Korea have grown strongly despite their exposure to higher oil prices.
• Oil prices have risen roughly 60% since February, while jet fuel and diesel prices are up 100% and 110%; global headline inflation is therefore expected at 3.4% this year, versus 2.8% last year, before easing to 3.0% next year if oil prices moderate.
• Sovereign yields have risen sharply since the U.S.-Iran conflict began, including by 175 basis points in France and more than 100 basis points in both the U.S. and the UK, as governments compete with AI investment for global savings.
• France is a key fiscal risk: budget deficits are likely to remain near 4% of GDP, government debt is approaching 120% of GDP, and political uncertainty could generate spillovers to Belgium, Italy and the UK.
• Citi remains constructive on AI investment and expects productivity benefits within two to three years, but highlights financial excesses, weakening political support and rising cyber risks; global AI capital expenditure could exceed $3.5 trillion by 2030.

Takeaway: The global expansion would require a substantially larger shock to derail, but investors should prepare for higher inflation, sovereign risk premiums and tighter monetary policy, with oil prices and the U.S.-Iran conflict determining how far central banks proceed.