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

Finance ministers from around the world are gathered for the International Monetary Fund's annual meeting in Bangkok, gathering to address the challenges facing the global economy. Despite the many obstacles they face, the ministers are not currently facing a full-blown crisis, a situation that is somewhat of a miracle compared to the financial meltdown of 2008.

One of the reasons for the robust growth of the global economy, despite multiple headwinds, is the significant investment in artificial intelligence. This has been particularly strong in the United States, which has seen the fastest year-on-year growth among the G7 major developed economies. The massive reserves of oil in countries like the United States have also helped to alleviate the impact of the energy shock caused by the conflict in the Middle East.

Additionally, China's economic strategy, which relies on exporting cheap goods, has helped to keep prices of imports lower, providing a boost to inflationary pressures.

However, the potential for trouble remains high. The conflict in the Middle East is escalating, with the conflict spreading to Saudi Arabia and oil stocks running low. The trade war between China and the United States is also causing concern, with the cost of borrowing rising in the US and capital shortages impacting non-AI sectors.

Governments are under pressure to cut spending or raise taxes to address budget deficits, but the idea of a new era of austerity is not popular among voters. At the same time, there is a growing call for increased self-sufficiency, which poses its own set of challenges.

The capacity of governments to act effectively is also limited, as demonstrated by student protests in India and France. The need to boost national self-sufficiency in the face of stretched and fragile global supply chains is a significant hurdle. At the same time, the multilateral cooperation needed to cope with these strains is lacking.

The World Trade Organization is moribund, and the IMF and World Bank are hesitant to challenge President Trump's erratic behavior. The liberal world order that has long governed the global economy is now dysfunctional, as former UN official Richard Kozul-Wright points out in a recent paper.

The IMF's assistance programs, while well-intentioned, often come with strings attached, including demands for tax increases and spending cuts. While this "tough love" approach may help countries avoid further IMF assistance, it does not necessarily improve living standards or reduce poverty. A return to the New Deal principles, which emphasized state intervention, active industrial policy, and full employment, would provide governments with more policy space to tailor strategies to their specific needs.

This would also mean a boost to public investment and a serious commitment to addressing the climate crisis through a new Marshall Plan for poorer countries.