Viewpoints: 2026

The world is being pushed to invest more than it has in decades.

A world on autopilot Every few months the International Monetary Fund publishes a projection of the world economy, and the Blue Chip panel of forecasters, along with other bodies, does something similar each month; together they help to set the consensus against which everything else is judged. It describes a world returning gradually to normal: global growth a little above 3%, inflation drifting back to target, and US policy rates continuing to ease from their peaks. Its most consequential feature is one that is easy to miss, because it sits in an accounting identity rather than being stated as a view: investment in the advanced economies is projected to remain close to 22% of GDP for the rest of the decade, essentially flat, with national saving tracking it (chart below). The large external imbalances — the US deficit and the surpluses of China, Germany and the oil exporters — are expected to persist more or less unchanged, and the real interest rate that balances saving against investment drifts gently lower. It is, in short, a forecast of continuity, and this piece argues that continuity may well be the wrong assumption.

The world has become more fragmented politically in the past decade, which has heightened global risk and uncertainty. The diminished sense of security has caused many countries to increase military spending. While this may be a rational response for individual countries, collectively, the rise in military spending has been alarming and seems to be leading the world toward even more risk and uncertainty. This in turn may feed the need for more security. In addition, the devotion of so much of the world’s resources to military spending may be damaging for the global economy.

According to the Stockholm International Peace Research Institute (SIPRI), world annual military expenditure reached $2.8 trillion (in constant 2024 terms) in 2025. That figure represented a 41 percent increase in the past ten years. However, half of that rise occurred in the past three years. We looked at the SIPRI Military Expenditure dataset (available in Haver’s GLSECTOR database) to understand how and why military spending is changing across countries and regions.

Worldwide gains in military spending The rise in military spending has been widespread. Between the years 2022 and 2025, 45 of the top 50 countries in terms of military spending posted increases, with an average gain among that group of 41.8 percent. NATO spending (excluding the US) jumped by 44.7 percent, while non-NATO military spending increased by 29.2 percent.

Surprisingly, US military spending was essentially flat during this time. As a result, US military spending declined as a share of world spending by 6.6 percentage points to 33.5 percent. However, the Trump Administration has proposed a $1.5 trillion military budget for 2027, a roughly 60 percent increase from the 2025 spending listed in Figure 1. If that budget is enacted, then in 2027 the US's increase alone would be equivalent to 20 percent of 2025's entire world total. And we know that other countries both in NATO and Asia are ramping up spending as well.

It has been argued that AI could usher in "10x of the Industrial Revolution at 10x the speed." Yet, for AI to deliver on its growth potential for the economy, not just for a select group of companies, it needs to create jobs, lots of them- to generate worker income and spur consumption growth. So far, the records for growth, jobs, and productivity are unimpressive; however, to be fair, they are far from the final scorecard.

In the first half of 2026, even with double-digit annualized gains in business spending on technology equipment and intellectual property (AI), the economy saw an annual growth rate of 1.75%, with real consumer spending rising by 1.8%, the creation of 450,000 payroll jobs, and productivity growth of about 1%. Various factors impacted that growth and job performance, with AI emerging as the most significant influence.

AI is reportedly already managing or assisting with large volumes of white-collar tasks, allowing some companies to reduce their headcount. But the future impact could be more significant in scale and breadth. AI is designed to perform tasks traditionally done by humans, whereas the Industrial Revolution was a massive job creator.

Predicting the impact of AI on the total number of employed individuals is challenging. Nonetheless, if AI enables companies to downsize their workforce or eliminates the necessity to expand it, this could significantly harm overall economic performance.

This isn't a pessimistic view; it's simply basic arithmetic. Real consumer spending accounts for 70% of overall GDP growth (add another 3% for housing), while all types of business investment spending are less than 15%. If real consumer spending decreases by 100 basis points due to sluggish job growth, investments in AI models and infrastructure would need to increase by 3X or 4X above the current rate to maintain the same GDP growth rate.

Is it possible? A surge in AI investment of this magnitude would far exceed most companies' current cash flows, requiring unprecedented borrowing from the private sector. Yet, then the real question with AI is whether such an investment is essential, considering AI might impede the growth of its main market, the consumer, due to stagnant job growth.

It's crucial to find a balance where AI enhances GDP output and productivity without adversely affecting the job market to the point where consumer spending significantly decreases. However, it's uncertain where such a trade-off exists.

These issues will not be settled today, next month, or even next year. Historically, infrastructure booms and new technologies take years before their economic and financial benefits become evident. Nonetheless, all past innovations have ultimately created more jobs than they eliminated. For AI to be truly successful, it must create more jobs than it removes, and the responsibility to prove this lies with AI.

There continues to be talk about how high-income households are carrying the economy. Is this new? The Bureau of Labor Statistics (BLS) annually surveys households regarding their expenditures in the aptly-named Consumer Expenditure Survey (CES). The latest BLS Consumer Expenditure Survey is for 2024. So, we do not know what went on in 2025 and so far in 2026. But what we do know from the 2024 CES is that higher-income households continue to spend more than lower income households – duh. But what we also know is that in 2024, things were close to or at their 1984-2024 medians with respect to average annual nominal expenditures compared to aggregate expenditures. To wit, in 2024, average annual nominal expenditures for the bottom 20% income quintile for households compared to the total average expenditures of all income quintiles was 8.9% versus a median of 8.8%. The comparable figure for the top 20% income quintile for households was 38.3% versus its 38.3% median. These data as shown in the chart below.

The Bureau of Labor Statistics (BLS) reported on August 7, 2026 that the three-month moving average of the change in total nonfarm payrolls was only 20,000 in the three months ended July 2026. This compares unfavorably with the 142,000 average change in the three months ended May 2026. (See Chart 1). If we can believe the BLS data released on August 7, three months of which were revised, the US labor market has weakened significantly in the past three months.

The debate rages on: do lofty corporate equity prices indicate an enormous speculative bubble or an emerging, tech-driven golden age? High equity valuations are naturally a basic part of the discussion, but price-to-earnings ratios (P/E ratios) alone do not fully reflect the grandeur of the expectations built into today’s stock prices. What makes market expectations remarkable is that high earnings multiples are based on profits that have already recorded extraordinary growth to the point of historically wide margins. Large multiples and remarkably wide margins together explain corporate equity values that are unprecedentedly huge in proportion to corporate operations. The United States will have to undergo a dramatic economic acceleration and an enduring, unusually rapid expansion to avoid a major disappointment for the stock market. By all appearances, stock prices will need the emergence of an AI-driven golden age if their present level is to be justified.

A number of market observers have noted that the Buffett Indicator, which is the total value of U.S. corporate equity relative to GDP, is at an exceptional record high (chart 1). For half of a century after World War II, corporate equity was at most equal to GDP and sometimes less than half of it; presently, that corporate equity is worth two-and-a-half times GDP.

Global investment in the energy transition continues to accelerate. The International Energy Agency (IEA) forecasts energy-sector investment will reach US$3.4 trillion this year, up 5%, with advanced economies and China accounting for around 70% of the total. More than US$2.2 trillion will be directed towards renewables, nuclear power, electricity grids, energy storage, low-emission fuels, electrification and energy efficiency.

Renewable power investment alone now totals around US$665 billion annually, while nuclear investment has reached US$80 billion and low-emission fuels US$30 billion.

Electric mobility remains one of the principal growth engines. Global EV sales are expected to reach 21 million vehicles this year, a 20% increase on last year. At the same time, artificial intelligence and data centres have emerged as powerful new sources of electricity demand, particularly in the United States. Investment in data centres has now overtaken global spending on oil supply, with the energy sector contributing US$105 billion of associated investment in 2025—more than the entire energy-sector investment across Africa last year.

The benefits of this investment are already becoming apparent. According to the IEA, a decade of spending on renewables, nuclear energy, electrification and energy efficiency has materially improved energy security while reducing emissions across major fuel-importing economies. In 2025 alone these investments saved China, the European Union, Japan, Korea, Southeast Asia and India an estimated US$260 billion in fossil-fuel import costs. Roughly one-third of the savings came from renewable energy, another third from energy-efficiency gains, around one-fifth from electrification and the remainder from nuclear power.

Nickel and the energy transition

The implications for critical minerals are profound. As governments pursue energy security, artificial intelligence expands, technology costs fall and net-zero policies remain in place, demand for minerals such as lithium, cobalt, nickel, copper, graphite and rare earths will continue to rise. These materials underpin batteries, electricity grids, permanent magnets and increasingly digital infrastructure.

Nickel is particularly well positioned (Figure 1). The IEA projects that global nickel demand will almost double by 2050, with clean-energy technologies accounting for 44% of total demand, compared with just 17% in 2024. Electric

For much of the past decade, the working assumption was that interest rates, having collapsed after the financial crisis, would eventually fall back once the latest disturbance had passed. Events are now overturning that assumption—and not only in the United States. Both consensus forecasters and the Federal Reserve's model for estimating the equilibrium rate across advanced economies point to the same conclusion: the real rate of interest—the price of capital after inflation is stripped out—has risen and is likely to remain higher. The question is no longer whether this shift has occurred, but why so much of the financial system is still configured for a world we have left behind.

The evidence is clearest in the United States. The driver is the demand for capital: an investment cycle in artificial intelligence, defence and the reshoring of supply chains is competing for scarce savings, capacity and labour, and that raises the return the economy has to offer to fund it. It now shows up in the forecasts. Over the past six months the Blue Chip consensus for the US policy rate one year ahead has risen by about 44 basis points, while the consensus for inflation over the same horizon has barely changed; only around ten of those basis points reflect higher expected inflation. The remaining 34 are a higher expected real rate. Forecasters are not marking up the price outlook so much as the return on capital the economy can sustain.