Global PMI hits 27-month high as AI boom powers growth

Global economic growth accelerated to its fastest pace in more than two years in August, driven by a wave of AI-related investment and a broad corporate spending boom that has so far absorbed the shocks of two wars and sharply higher energy prices.

The J.P. Morgan JPMorgan Chase & Co. ↘ 0.32% Global Composite PMI Output Index, compiled by S&P Global ↘ 1.90%, rose from 52.7 in July to 53.5 in August, a 27-month high, according to data published on September 8. Historical comparisons indicate the reading is consistent with global GDP growing at an annualized rate of around 3.0%, a sharp acceleration from the 1.9% pace estimated for the second quarter.reuters+1

AI and Services Power the Expansion

Manufacturing output continued to expand, supported by tech equipment spending and rising machinery demand, but the larger improvement came from the services sector, where growth accelerated for a fifth consecutive month to the fastest since December 2024. Financial services led the way, posting its strongest expansion since May 2021, bolstered by IT services and recovering consumer spending after a war-related slowdown earlier in the year.spglobal

The AI investment cycle has emerged as one of the most important forces sustaining global activity. The enormous capital expenditure required to build data centers is generating demand across construction, technology, electricity, and industrial commodities. Copper prices, often treated as a barometer of industrial health, have approached record highs as AI infrastructure buildout and higher defense spending add to demand alongside supply constraints.moderndiplomacy+1

Growth Raises Inflation and Rate Concerns

The strength of the expansion, however, is creating tensions. In the six months since the Iran war pushed crude oil prices up 50% and doubled natural gas prices, strong demand has kept inflationary pressures alive and long-term bond yields near their highest levels in decades. Central banks remain the primary policy restraint, with fiscal authorities showing little appetite to tap the brakes.reuters

Reuters columnist Mike Dolan noted that JPMorgan's data showed the August reading "stands in line with the peaks of mid-expansion upswings over the past two decades," excluding rebounds from recessions. Deutsche Bank ↘ 0.76% strategist Jim Reid argued in the Financial Times that rising yields simply mean "bonds have become bonds again," returning to their traditional income-generating role after the anomaly of the 2010s.reuters

A 'New, New Normal'

David Kelly, chief global strategist at JPMorgan Asset Management, described the emerging environment as a "new, new normal," defined by the return of economic nationalism, trade protectionism, and the potentially transformative effects of AI — all layered on top of government debt levels accumulated during the post-2008 recovery and the pandemic. The International Monetary Fund is expected to revise its 2026 global growth forecast upward from the 3.0% it projected in July, with 2027 already forecast at 3.4%.moderndiplomacy+1

Business confidence improved modestly in August but remains low relative to output, a divergence that has persisted since the announcement of U.S. "Liberation Day" tariffs in the second quarter of 2025. Corporate uncertainty, meanwhile, has fallen sharply from near-record levels in April but remains 2.4 times its long-run average.spglobal

"We can't expect Treasuries to rally in reaction to an economic or market downturn to the same extent that they did in the old normal," Kelly wrote. "Investors need broader sources of diversification."reuters