AI-led growth looks strong, but concentration risks are hard to ignore

The January 2026 update of the International Monetary Fund’s (IMF’s) “World Economic Outlook”, released this week, underlines how artificial intelligence (AI) has emerged as a key engine of global growth. The upward revision of global growth for 2026 to 3.3 per cent is driven largely by a surge in technology and AI-related investment, concentrated mainly in the United States (US). The IMF estimates that technology investment in the US added around 30 basis points to average annualised gross domestic product (GDP) growth in the first three quarters of 2025, helping push the 2026 growth projection up by 30 basis points to 2.4 per cent. Corporate earnings and investment announcements early this year suggest that spending on AI infrastructure — ranging from advanced semiconductors to data centres and Cloud capacity — continues to outpace broader capital expenditure, reinforcing the IMF’s assessment that technology is cushioning growth even as global trade remains fragile. On the upside, broader AI adoption could boost productivity and medium-term growth while a sustained easing of trade tensions may enhance policy predictability and revive investment momentum.

 

However, the IMF also cautions that the AI-led growth rests on a narrow base. An AI investment boom might be a bubble that could burst, similar to the dotcom bust of the early 2000s. If expectations rise faster than actual productivity gains, excessive investment could abruptly unwind. A sharp correction in stock-market valuations can quickly slow growth by curtailing capital spending and weakening confidence even if it does not trigger a full-blown financial crisis. A small group of large US technology firms are driving equity markets, pushing AI-linked valuations far above the broader market. The United Nations’ report “World Economic Situation and Prospects 2026” also notes that AI investment remains highly concentrated, with the US accounting for 72.5 per cent of global corporate AI spending in 2024, underscoring how far behind most countries remain.

 

However, research cited by the World Economic Forum argues that AI systems are already performing tasks worth $4.5 trillion in economic value in the US alone, indicating productivity gains. Thus, while the wider adoption of AI in different functions may have improved productivity, the level of investment and its concentration is a concern. There are also concerns over energy intensity, data concentration, and labour displacement. For many emerging and developing economies, limited access to capital, skills, and data threatens to widen gaps in income and productivity.

 

India’s growth story sits at the intersection of global headwinds and domestic potential. The IMF has reaffirmed India’s position as the fastest-growing major economy, with its 2025-26 forecast revised to 7.3 per cent. Growth in 2026-27 is expected to moderate to 6.4 per cent. GDP growth this financial year surprised on the upside, and the challenge for policymakers will be to sustain the momentum next financial year. In the context of AI investment, India has also benefitted in terms of attracting investment in data centres by large technology firms. However, it may also need to be prepared for the impact of a possible slowdown or reversal in AI investment, leading to a sharp correction in US and other stock markets. In any case, foreign investors are pulling out of Indian markets, and the situation could worsen if global market sentiment weakens significantly. Thus, aside from global trade-related uncertainties, the possible unwinding of Al-related trades could also pose risks to growth.