The global economy is muddling through against the odds. But a storm is coming | Larry Elliott

The global economy is muddling through against the odds. But a storm is coming Larry Elliott Finance ministers gathering for the IMF annual meeting know the need for multilateral cooperation to deal with many crises. There is little chance of that

N ot much has gone right for the global economy this year, and plenty has gone wrong. Two big regional wars are destabilising prices and supply chains everywhere. Businesses and consumers are feeling the effects of a serious energy shock. Rising inflation has made it a lot more expensive for governments to finance their debts. China and the US are at loggerheads over trade.

Yet, so far, the impact has been modest. It is something of a miracle that the finance ministers and central bank governors gathered for this year’s annual meeting of the International Monetary Fund (IMF) in Bangkok are not having to deal with a full-blown crisis. This is not like the autumn of 2008, when the meetings took place during the worst of the global banking meltdown.

The IMF is right when it says countries have shown resilience when having to cope with so many headwinds. It could have been worse. A lot worse. There was even some good news for the UK, with the IMF upgrading its growth forecast for this year and praising the government for its deficit-reduction plan.

The better-than-expected performance of the global economy breaks with historical precedent. In the past, oil shocks of the magnitude witnessed since the start of Iran war have had a marked and immediate impact, but there are three key reasons why growth has remained robust and inflationary pressure has been muted this time.

The first is the massive amount of investment in the development of artificial intelligence. This has been particularly important in the US, which is comfortably the fastest growing member of the G7 group of major developed economies year on year. The second is that countries have drawn on inventories of oil, and that has helped to alleviate the loss of crude from the Middle East. Had stockpiles not been run down, oil prices would have risen even more sharply. The third is that China’s economic strategy relies on exporting cheap goods to the rest of the world, and this is bearing down on the prices of imports elsewhere.

All that said, the potential flashpoints for trouble are everywhere. The situation in the Middle East is deteriorating, with the conflict spreading to Saudi Arabia. Oil stocks are running low and Donald Trump has got the US into just the sort of forever war that he used to rail against. The downside to cheap Chinese goods is that they are threatening manufacturing jobs in the west, with Germany especially vulnerable.

Meanwhile, massive US investment in AI has pushed up the cost of borrowing and resulted in shortages of capital for non-AI sectors. Governments are coming under pressure to rein in spending or raise taxes in the hope that bond markets will be impressed by their efforts to cut budget deficits.