Global economy splits as AI boom collides with energy shock

Key topics:AI boom drives Asia growth; energy shock drags others downTaiwan, Korea surge on chip exports; Japan economy weakensWar fuels inflation, rate uncertainty and global trade divides.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Brendan Murray.The global economy is increasingly captive to two opposing forces.A recent flurry of data underscores how the AI investment boom is propelling trade, investment and consumption in some corners, while the energy shock from the Iran war is inhibiting them in others.Growth in Taiwan jumped almost 14% last quarter, the fastest expansion since 1987, and South Korea’s exports advanced by almost 50% for a second straight month in April as chip exports surged 173% from a year earlier.By contrast, the Bank of Japan this week slashed its economic growth forecasts and held interest rates steady, with weakness in the yen triggering a rare intervention. Factory output fell in March in Japan, where there are fears that food and beverage prices are set to increase because of a shortage of a key ingredient used in plastic packaging. Asia sits at the epicenter of both the power crunch that’s sinking growth prospects, threatening shortages and sparking inflation concerns, and the growth tailwind fueled by the buildup in data storage capacity and artificial intelligence. .Read more:.Justice Malala: Africa’s energy vulnerability exposed as war shakes fuel markets.The economic reverberations are going global, though, as policymakers from New Zealand to Norway brace for impact and investors bet on winners and losers.Knock-On EffectsSo far this year, the currencies of commodity-exporting nations have outperformed, including the Norwegian krone and the Australian dollar. In contrast, those dependent on energy imports such as India’s rupee and the South Korean won have lagged. A similar divide is defining winners and losers across stock markets. In China, exports kept factories humming in April even as construction suffered its biggest slump since the early stages of the Covid pandemic and the services sector fell back into contraction. Disparities in gross domestic product were evident across Europe, where Spain, Germany and Italy’s economies in the first quarter outperformed while France’s stalled. European Commission President Ursula von der Leyen warned the continent may spend years grappling with fallout.In the US, orders for business equipment increased in March by the most since mid-2020. The AI boom also bolstered GDP in the first quarter, offsetting the slowdown seen in consumer spending growth. Meantime, rising costs for gasoline — now around 2022 levels — helped send a measure of consumer sentiment tumbling to a record low in April.“The jump in energy prices will take some of the shine off what would otherwise have been a strong year for the economy,” Michael Pearce at Oxford Economics wrote in a research note Thursday.Earlier this week, Oxford Economics estimated goods trade worldwide will expand about 2.5% both this year and next, after rising by 4.9% in 2025. It also released at study of 120 businesses polled April 20-30 that showed businesses expect global economic growth of 2% this year, 0.4 percentage point lower than a similar average forecast just before the war began..The price pressures are most acute in South Asia, where households and businesses are highly dependent on energy imports and food inputs like fertilizers which are in short supply. In India, the world’s most populous country, fuel shortages are starting to spur consumers to line up for gasoline and diesel and the country’s currency dropped to a record low on concern about the economy’s exposure to the energy crisis.Adding pressure to energy supplies is a factor outside of any policy maker’s control: India’s electricity demand climbed to a record amid blistering heat waves.The Asian Development Bank revised its outlook for Asia’s economic growth this year to 4.7%, down from 5.1% seen less than three weeks ago. “We are confronting systemic, long-lasting disruptions to global energy and trade networks, not just temporary volatility,” ADB President Masato Kanda said in a statement.Nations in Africa and Latin America are also bracing for a jolt of inflation.Kenya’s annual inflation climbed to its highest level in two years and is expected to accelerate further, according to its Treasury Secretary. South Africa extended cuts to fuel taxes to ease gains in domestic gasoline and diesel prices.Mexico’s economy contracted by the most in nearly six years in the first quarter despite President Claudia Sheinbaum’s efforts to boost local and foreign investment to stimulate growth. Rate OutlookFor monetary policymakers, it’s an environment to proceed cautiously. The US Federal Reserve, the European Central Bank and the Bank of England all held policy steady this week as they assess the war’s impact on their economies.Swap market pricing implies the Fed will hold interest rates steady this year, having previously priced at least two 2026 rate cuts. The move is more pronounced in the jurisdictions most exposed to the energy shock. Traders are betting on three quarter-point rate hikes from the ECB this year, compared to none before the conflict. Equivalent pricing for the Bank of England has flipped from two cuts to as many as three hikes..In Australia, economists widely expect the central bank will be forced to deliver another interest-rate hike next week to curb inflation, even as consumer sentiment wobbles as fuel bills climb. In Brazil, the central bank cut its key interest rate by a quarter point for the second straight meeting but signaled no commitment to more easing amid a wariness about accelerating inflation. More worried about prices was the State Bank of Pakistan, which raised its benchmark rate for the first time in almost three years.The trade-exposed British economy is especially at risk and could slip into recession later this year and be forced to hike interest rates aggressively to contain inflation, the National Institute of Economic and Social Research warned. Such a path might be uneven if the UK sees more reports like one Friday showing strong growth at Britain’s factories in April, with new orders, exports and employment all rising. Some of that strength likely reflects firms stocking up ahead of potential supply disruptions and households bringing forward purchases as rate hikes loom..While some signals are flashing red and others green, several appear to be flukes tied to wartime disruptions, geopolitical uncertainty and American tariffs..Read more:.The Economist: The coming economic shock of superintelligent AI.In the category of trade deficits, Qatar posted its first on record as exports plunged, and Hong Kong’s was the widest in at least 74 years as imports surged by the most in more than three decades.Recent figures showed a sharp fall in UK exports to the US as President Donald Trump’s tariffs took hold, turning British trade surpluses into deficits in a reversal of transatlantic trade dynamics.Singapore is seeing a surge of haven money as the war pushes investors to look for stability. Foreign deposits in the city-state’s banks climbed to the highest level since records began in 2021, according to data released Thursday by the Monetary Authority of Singapore..© 2026 Bloomberg L.P.

Global economy splits as AI boom collides with energy shock

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