Artificial intelligence has become the dominant narrative in both markets and macroeconomics. From predictions of mass white-collar job losses to dreams of a productivity renaissance, AI sits at the center of investor psychology.
The stock market reflects that obsession. Chip giant Nvidia remains one of the biggest winners of the AI build-out, its valuation tied closely to relentless demand for advanced processors and data-center expansion. Earnings reports from firms like Nvidia are now treated as economic barometers.
At the same time, AI disruption cuts both ways. Legacy technology companies such as IBM have experienced sharp volatility, especially as AI-native firms introduce tools that challenge traditional enterprise software models. Yet when you zoom out, major U.S. indexes are roughly flat for the year, and global equities are modestly higher. Beneath the AI headlines, something broader is happening.
The Industrial Rebound No One’s Talking About
According to analysis from JPMorgan Chase economists, global industrial production grew 2.4% last year, more than double the average pace seen in the prior three years. That acceleration came despite the most intense trade tensions in decades, lingering effects of high interest rates from 2022 to 2024, and tariff uncertainty linked to policies under Donald Trump. Some early 2025 growth was front-loaded as companies rushed production ahead of new U.S. tariffs, but the feared post-tariff collapse never materialized. Instead, the global goods-producing sector outperformed services, a notable shift after years of services-led recovery following the pandemic.
It’s Not Just Tech Capex
Yes, AI-related capital expenditure has been enormous. Global tech production nearly doubled last year, rising over 9 percent. But consumer demand accounts for roughly twice as much goods demand as capital expenditure, and it held up in the second half of the year. Hiring is expected to improve as business caution fades. JPMorgan’s economists argue that 2025’s pickup wasn’t driven purely by tech spending. Instead, it reflected a return to growth in non-tech production the old economy sectors that don’t make headlines but move real goods. If hiring continues to stabilize, income-driven consumption could sustain growth even if AI investment moderates.
Government Spending Is Also Fueling Growth
Beyond AI, several powerful forces are in play. Defense and security spending is rising globally, U.S. fiscal stimulus and tax policy continue to support demand, Germany is pushing forward on infrastructure projects, Japan has new fiscal plans, and China is investing heavily in domestic technology to counter geopolitical pressures. These dynamics create demand far outside Silicon Valley’s ecosystem. For central banks, this complicates rate decisions. A broad-based industrial upswing layered on top of AI capex reduces the urgency to ease monetary policy aggressively.
The Labor Market Question
There’s growing speculation about AI-driven white-collar job displacement. Some research houses warn of structural unemployment risks if AI automates large swaths of cognitive work. But for now, there’s no clear macro evidence of widespread job destruction. Hiring expectations are improving rather than collapsing, and consumer demand remains intact. AI may eventually reshape industries, but it hasn’t yet translated into measurable macro contraction.
Why This Matters
Markets tend to chase the loudest story. Right now, that story is AI. But the data suggest something more balanced. AI is accelerating investment cycles, industrial production is rebounding more broadly, government fiscal policy remains expansionary, and consumer demand is still resilient. In other words, AI may be the cherry on top, not the entire cake.
Analysis: The Narrative Risk
The danger for investors and policymakers alike is narrative concentration. If everyone believes global growth hinges entirely on AI, any slowdown in chip demand could spark exaggerated fears, market volatility could rise around tech earnings, and policymakers might misjudge the breadth of economic momentum. But if industrial expansion is genuinely broadening, with 2–3 percent annualized output gains projected, the global economy may prove more durable than the AI-centric storyline suggests. The takeaway is that AI is transformative, but for now, the global economy still runs on factories, infrastructure, consumer demand, and fiscal policy. The old engines are still humming.
With information from Reuters.
