Global economy navigates fragmentation, AI boom, and monetary easing
Fabio Panetta, Governor of Banca d'Italia, addressed global economic trends, highlighting stronger-than-expected growth driven by artificial intelligence and easing monetary conditions. He discussed the reconfiguration of international trade amidst geopolitical fragmentation.
AI fuels global expansion amid trade shifts
In 2025, global GDP grew by 3.3 percent, exceeding forecasts, primarily due to the artificial intelligence boom, particularly in data center construction.
The United States benefited significantly, recording 3.2 percent GDP growth since last spring, supported by buoyant household consumption.
China achieved its 5 percent growth target by redirecting excess output to other markets despite US trade barriers, aided by 8.8 percent lower export prices since early 2024.
This strategy, however, fuels deflationary pressures without stronger domestic consumption.
Global activity was also boosted by a rapid pickup in international trade and easing monetary conditions.
Interest rates in the United Kingdom, United States, and euro area are down by 150, 175, and 200 basis points respectively from their peaks.
The IMF forecasts global growth to remain stable at 3.3 percent in 2026, with downside risks from financial markets and geopolitical tensions.
Euro area growth faces trade and inflation headwinds
The European economy grew by 1.5 percent, exceeding expectations, supported by real income recovery and monetary easing.
Consumer spending remains constrained by global uncertainty.
Industrial activity is challenged by Chinese competition, with euro area imports from China rising 27 percent in volume and prices falling 8 percent since early 2024, fueling disinflation.
Euro area inflation reached 1.7 percent in January, projected to stabilize around 2 percent medium term.
The ECB has maintained key interest rates since last June.
Inflation risks persist from energy and supply chains (upside), and from euro appreciation or tighter credit (downside).
A flexible, data-driven monetary policy approach is essential.
Fragmentation's hidden costs
The global economy's apparent resilience to fragmentation masks significant structural shifts and hidden costs.
While trade volumes have reconfigured, the increased complexity affects production, delivery, and transparency.
This suggests that short-term adaptability comes with long-term vulnerabilities, demanding vigilant policy responses.