According to Moody's Analytics Global Economy Outlook, global growth is expected to slow to 2.5% in 2026 and recover to just 2.8% in 2027. The agency noted that booming demand for artificial intelligence has helped prevent a sharper economic slowdown, though geopolitical risks, stretched asset valuations, and financial market volatility could easily push the outlook toward recession. As reported by Moody's Analytics, growth will slow in 2026, but by less than expected at the start of this year. The global economy is currently experiencing 'K'-shaped growth where different segments are moving at distinct speeds, with the agency emphasizing that the global economy is running at two different speeds, with some segments experiencing growth that exceeds expectations while others struggle to keep pace.
The artificial intelligence boom is creating stark economic divisions across countries and industries. According to Moody's Analytics, some segments are experiencing growth that exceeds expectations, driven by AI-related demand. The agency highlighted that the AI boom has driven a surge in data centre investment, exports in Asia's tech-heavy economies, and stock market valuations across the world. However, economies and industries less connected to the AI boom have struggled, creating a clear economic divide between sectors benefiting from AI adoption and those remaining behind. As Moody's Analytics noted, the result is a K-shaped world economy where some countries and industries race ahead while others fall behind. AI has sparked big investments in data centers and boosted Asian tech exports, but not all sectors are seeing these benefits. The AI investment cycle has become the principal support for global growth, particularly in Asia, where semiconductor production and electronics exports have surged. Taiwan, South Korea and other technology-intensive economies have benefited disproportionately from booming demand for AI infrastructure, while countries less integrated into global technology supply chains have struggled with weaker growth.
India is expected to experience a moderation in growth despite remaining among the world's fastest-growing major economies. According to Moody's Analytics, "India will lose a step, too" amid the broader global economic slowdown. Moody's Ratings, the sister arm of Moody's Analytics, in May lowered its growth forecast for India to 6% from 6.8% for 2026, while the agency itself has lowered India's real GDP growth projection for the 2026-27 fiscal year to 6.6% from the earlier estimate of 6.9%. The benefits of the AI boom have been uneven, with countries and industries integrated into the technology value chain continuing to outperform those grappling with higher energy costs and weaker demand. The AI boom has prevented a steeper downturn, with massive investments in data centres, semiconductors and computing infrastructure creating a K-shaped global economy. However, external headwinds rather than domestic weaknesses are likely to become the principal constraint over the next two years, particularly if higher oil prices widen the import bill, fuel inflation and delay any easing in interest rates. Despite this moderation, Moody's expects India to retain its position as the fastest-growing major economy even though economic growth is likely to moderate in 2026.
The latest Moody's outlook reveals significant variations in growth prospects across major economies. China's economy is projected to grow 4.6% in 2026 before slowing further to 4.2% in 2027, while the US economy is expected to average around 2% growth over 2026 and 2027. The euro zone is forecast to expand by 0.8% in 2026 before improving to 1.6% in 2027, and Japan's growth is expected to remain below 0.5% on average during the two-year period. These projections underscore India's relative strength, as the agency said "India will lose a step, too" but it will still expand at a faster pace than China, the US, the euro zone, the UK, Japan, Canada and the broader emerging markets group. The report forecasts global GDP growth of 2.5% in 2026, improving slightly to 2.8% in 2027, though both figures remain below the more than 3% growth rate that Moody's believes the global economy is capable of achieving.
Geopolitical upheaval and trade disruptions are adding complexity to the global economic landscape. As reported by Moody's Analytics, geopolitical upheaval and trade disruptions, from the Middle East conflict to friction between the US and its trading partners, have driven up prices and the cost of doing business. The Middle East conflict has specifically fuelled inflation through higher energy and food prices, while uncertainty around US tariff policy and growing trade friction between China and the European Union continue to add to downside risks. These factors are contributing to the overall economic slowdown, though the AI boom has helped mitigate the impact of these challenges to some extent. A prolonged disruption in West Asia and renewed attacks affecting shipping through the Strait of Hormuz could sharply raise oil prices, spiking inflation worldwide and undermining economic growth. Although a brief ceasefire had briefly restored shipping through the strategic waterway, Moody's noted that the situation remains fragile after renewed threats of military action and attacks in the region. The agency warned that geopolitical tensions remain the biggest downside risk to the global economy, with any fresh escalation in West Asia or prolonged disruption to shipping through the Strait of Hormuz creating additional challenges for countries worldwide, including India. The report also flagged stretched equity valuations, jittery bond markets and exchange rates that are badly misaligned, particularly in East Asia.
