Global Economy Shakes Off Tariff Shock Amid Tech-Driven Boom
IMF Blog, January 19, 2026
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- Authors: Tobias Adrian, Pierre-Olivier Gourinchas
- Published: January 19, 2026
Key findings and headline projections
- Global growth projected to hold steady at 3.3 percent this year.
- Projection is an upward revision of 0.2 percentage points compared to October estimates.
- Current projections are broadly unchanged from a year earlier.
- US and China account for most of the improvement in the global outlook.
- IT investment as a share of US economic output has surged to the highest level since 2001.
- Market capitalization relative to output in the United States rose from 132 percent in 2001 to 226 percent now.
Drivers of resilience
- Easing trade tensions, higher-than-expected fiscal stimulus, accommodative financial conditions, private-sector agility in mitigating trade disruptions, and improved policy frameworks in emerging market economies.
- Continued surge in information technology investment, especially in artificial intelligence, providing a major boost to business investment and activity.
- IT surge concentrated in the United States but generating positive spillovers globally, notably to Asia’s technology exports.
- Since late 2022, coinciding with the introduction of the first widely used generative-AI tools, stock prices have risen sharply.
- Favorable financial conditions and robust earnings have supported rising stock prices and helped fund new capital spending.
Financial vulnerabilities and mechanics
- Debt financing is becoming more prevalent as expansion accelerates, increasing leverage.
- Higher leverage could amplify shocks if returns fail to materialize or if broader financial conditions tighten, adversely impacting firms and raising concerns about spillovers to the broader financial system.
- Profitability could become sensitive to assumptions around depreciation schedules for advanced processors; frequent equipment upgrades will squeeze profit margins, weigh on earnings, and require significant additional debt financing.
- The rise in price-earnings ratios has been more modest in the current boom given more robust earnings; estimated potential overvaluation for the broad equity index in the United States is only about half that of the dot-com episode.
Risks to the outlook and scenarios
- Upside scenario: AI could raise US and global activity by 0.3 percent this year, relative to the baseline.
- Downside scenario (referenced): October 2025 WEO scenario with a moderate correction in AI stock valuations and a tightening of financial conditions reduces global growth by 0.4 percent relative to the baseline.
- Downside channels include:
- AI firms failing to deliver earnings commensurate with valuations, souring investor sentiment.
- Real investment in technology sectors declining more sharply, triggering costly reallocation of capital and labor.
- Lower-than-expected total factor productivity gains combined with a more significant correction in equity markets, with output losses concentrated in tech-heavy regions such as the United States and Asia.
- Given decade-long increase in foreign ownership of US equities, a sharp US correction could trigger sizable wealth losses outside the United States and exert a drag on consumption globally.
- Economies with little exposure to technology, including many high-debt and low-income countries, could be buffeted by negative external demand spillovers and higher external borrowing costs.
- Geopolitical risks: heightened geopolitical uncertainty, increased use of export controls on critical inputs and trade-related restraints, and eroded fiscal space in many countries could interact with a reassessment of AI productivity and asset repricing in a self-reinforcing manner.
- Trade disruptions: while the global economy has shaken off the immediate tariff shock, negative growth effects of trade disruptions are likely to build up over time.
Policy recommendations and priorities
- Financial stability:
- Strong prudential oversight to safeguard financial stability given stretched asset valuations, rising debt financing, and elevated uncertainty.
- Supervision and regulation should ensure robust underwriting standards by banks and nonbanks especially those exposed to the technology sector.
- Adherence to internationally agreed standards on bank capital and liquidity.
- Policymakers must be ready to deploy contingency plans for diverse risks.
- Monetary policy:
- Delicate balancing act: if the tech boom continues, it may push real neutral interest rates higher—calling for monetary policy tightening that would contract fiscal space in countries not benefiting from AI.
- If the downside scenario materializes, the rapid decline in aggregate demand will call for a speedy reduction in policy rates.
- Central banks should operate within their mandate; central bank independence remains paramount for monetary and financial stability and economic growth.
- Fiscal policy:
- Governments should renew efforts to reduce public debt and restore fiscal space where needed.
- Labor and inclusion:
- Address AI’s uneven impact on workers by lowering barriers to adoption, helping workers invest in the right skills, supporting job mobility through targeted programs, and maintaining competitive markets to facilitate entry and broadly share innovation benefits.
Overall assessment
- Global growth has shown impressive resilience amid trade disruptions, driven substantially by a concentrated tech investment surge.
- The IT/AI-driven investment boom offers transformative potential but introduces financial and structural risks—stretched valuations, rising leverage, concentration in a narrow set of firms, and geopolitical and trade frictions—that demand vigilant supervision and prudent policy calibration to avoid a boom-bust outcome and to promote sustainable, inclusive growth.
Authors: Tobias Adrian, Pierre-Olivier Gourinchas — January 19, 2026