Economists warned on Wednesday that global growth is slowing amid rising geopolitical tension, mounting debt burdens and uncertainty over the economic impact of artificial intelligence, as the Iran war and trade disruptions weigh on the global economy.
The discussion came after the World Bank cut its global growth forecast to 2.5 per cent in 2026 from an estimated 2.9 per cent pace last year, citing concerns over wars, trade fragmentation and weaker investment. The World Bank also lowered its 2026 growth projection for the Middle East, North Africa, Afghanistan and Pakistan region from 1.8 per cent to 1.6 per cent.
Despite the darker outlook, Jan Hatzius, chief economist at Goldman Sachs, argued that AI could provide a significant boost to productivity and economic growth over the coming decade.
“When you do see these sort of long tables or dinners, if you look at the topics that come up, the top 10, eight or nine of them are negative and downside,” Mr Hatzius said during an event at the Council on Foreign Relations in New York.
“But then there is one big positive, which is that I do think we're seeing an acceleration in underlying productivity growth and ultimately potential GDP growth.”
The massive wave of investment into AI infrastructure is already supporting economic activity, he said, estimating that AI could deliver “about one and a half percentage point boost to productivity growth annually over a 10-year transition period".
Those expectations have led Goldman Sachs to lift its long-term GDP growth forecast from 1.75 per cent before the pandemic to 2.5 per cent now.
“I'm more concerned overall by this general sense that debt can simply be increased exponentially without there being a political pushback,” he said.
Natasha Sarin, founder of Yale University's Budget Lab, said emerging markets were bearing the brunt of the economic fallout from the conflict.
“I think it's accurate to say that emerging markets have really been getting hit hardest by developments that we've seen as a result of this war,” Ms Sarin said during the event.
She noted that many African economies entered the year with optimism after recovering from the shocks of the Covid-19 pandemic and the war in Ukraine, but that outlook had deteriorated sharply.
“Energy markets have been massively disrupted,” she said. “We're seeing massive increases in oil prices that are being borne very substantially, and frankly, even if we are at some sort of potential resolution, it's going to take months, if not years, for this energy infrastructure and these markets and supply chains to really normalise.”
Opec earlier on Thursday said it anticipates world demand for oil will increase to 113.3 million barrels per day in 2030, unchanged from last year's world oil outlook report. Gulf exporters have been forced to make significant export cuts this year due the closure of the Strait of Hormuz and attacks on key energy sites.
Ms Sarin said the disruption extended beyond crude oil, with delays in shipments of refined products creating additional strains for developing economies.
“You're also seeing massive delays in shipments of significant products, particularly refined products that are slow to arrive in ways that are consequential for economies, and frankly, there isn't a lot of resiliency right now in order for those countries to be able to bear,” she said.
Doug Rediker, managing partner at International Capital Strategies, said the economic fallout from the recent conflict in the Middle East could be overshadowed by broader geopolitical consequences.
“The major takeaways from the Iran war, whether it ends one way or the other, whether it ends at all, are going to be more strategic than economic,” Mr Rediker said.
In a blog post earlier this week, International Monetary Fund Managing Director Kristalina Georgieva said that while inflation expectations, financial conditions and commodity prices have been affected by the war, the global economy so far has weathered the Iran conflict's impact.
“The sooner it is resolved, the better – especially as supply will take time to recover given the significant infrastructure damage,” Ms Georgieva wrote, adding that she welcomes the peace deal
“But should the conflict or disruptions intensify, this is a clear risk to global growth."
