Concerns over high oil prices are growing as the Middle East war drags on, leading to projections that inflationary pressures in major countries will persist longer than expected. However, as investment in artificial intelligence (AI) underpins growth in a handful of countries, including the United States, China, Korea and Taiwan, the outlook for global economic growth was maintained.
According to a survey by Reuters on the 28th (local time) of about 500 economists worldwide conducted from the 29th of last month to the 27th of this month, this year's inflation outlook was revised higher in 39 of the 50 major countries among those surveyed than in the April survey. In contrast, this year's growth outlook was revised lower in 32 countries. Next year's inflation outlook was also found to be higher in 37 countries, while next year's growth outlook was found to be lower in 21 countries.
Economists cited the growing risk of supply disruptions in crude oil as the main reason for raising inflation forecasts, as military clashes between the United States and Iran have continued for a fifth month. Although international oil prices have stabilized somewhat since the United States temporarily paused recent airstrikes on Iran, they remain more than 20% higher than before the war erupted.
Claudio Irigoyen, head of global economics at Bank of America (BoA) Research, said, "Markets and some economists are underestimating the persistence of inflation," adding, "We cannot rule out the possibility that the Iran war could push international oil prices to $120 or $150 per barrel. I do not see oil prices falling sharply." He assessed that the current war has triggered a "mild stagflation shock," in which economic slowdown and inflation occur simultaneously.
In this environment, expanded AI investment was cited as a pillar supporting the global economy. The global growth outlook for this year and next was maintained at 2.9% and 3.1%, respectively, the same as the April survey. This appears to reflect that increased AI investment by big tech companies has offset the slowdown in global growth. Douglas Porter, chief economist at BMO Capital Markets, explained, "Without the wave of AI investment by big tech companies, global growth would have been far weaker than it is now."
By country, Korea and Taiwan saw the largest upward revisions to this year's growth outlook thanks to expanded AI investment. The growth outlooks for the United States and China this year were also maintained at 2.2% and 4.6%, respectively, the same as the April survey. Frederic Neumann, chief Asia economist at HSBC, said, "In some Asian countries such as Korea and Taiwan, AI-related investment is a positive factor for the economy," but noted, "Because the AI hardware boom is concentrated in certain industries, it is merely masking slumps in other sectors; the economic foundation is more fragile than expected."
By contrast, Middle Eastern countries such as Kuwait, Bahrain, Qatar and Saudi Arabia saw their growth outlooks for this year revised down due to the direct impact of the war. The eurozone's growth outlook for this year also fell to 0.5% from 0.9% compared with the April survey. Economists said that while AI investment is supporting the global growth trend, if high inflation from the war persists for a long time, growth gaps between countries will widen further, increasing the burden on each Central Bank in conducting monetary policy.