IMF chief warns of risks to the global economy

Persistently high energy prices, record government debt and risks linked to the artificial intelligence investment boom threaten the global economy, International Monetary Fund Managing Director Kristalina Georgieva warned on Wednesday. In a speech previewing next week’s IMF and World Bank annual meetings in Bangkok, she urged governments to take preventive fiscal and monetary measures, ERR reported.

Georgieva said the global economy was being pulled in opposite directions by two shocks: energy shortages stemming from conflicts in the Middle East and a positive demand shock driven by AI that is also fuelling inflation. The effects vary widely between regions, she said, adding that many countries are being left out of the AI boom.

The IMF’s new growth forecasts, due to be released during the Bangkok meetings, will show the largest downgrades for economies devastated by war, Georgieva said. These include Ukraine, where civilian and economic infrastructure has suffered extensive damage, and Gulf states hit by Iranian attacks and a sharp fall in energy exports.

Georgieva did not say whether the new outlook would change the IMF’s global growth forecast for 2026, which was cut to 3% in July. That forecast projected a recovery to 3.4% growth in 2027 and assumed that shipping through the Strait of Hormuz would begin recovering in mid-July and return to pre-war conditions by March 2027. It also assumed average oil prices of $89 a barrel in 2026 and $78 in 2027.

Oil is currently trading at about $100 a barrel, Georgieva said. Damage to refining capacity is adding a further $100 a barrel to the crack spreads for key oil products, including diesel. The spread measures the difference between the price of crude oil and the value of products made from it. Winter heating demand is rising, while gas supplies remain constrained by threats to liquefied natural gas shipments through the Strait of Hormuz, she said.

Even if the war in the Gulf ends soon, high energy prices are likely to persist for some time, Georgieva said. Brent crude futures point to elevated oil prices through 2027.

Higher energy costs are pushing up inflation, policy interest rates and bond yields, she said. Yields on 10-year government bonds in the United States, Germany and Japan are at their highest levels since 2007, 2009 and 1996, respectively, and are still rising.

Georgieva also warned that growing public debt is weighing on economic growth and adding to inflationary pressure. The IMF estimates that government debt is at its highest level since the Second World War and is expected to exceed 100% of global gross domestic product before 2030.

She singled out advanced economies, led by the United States, as the biggest offenders on debt, saying their debt-to-GDP ratios are higher than those of emerging and low-income countries. Policymakers can no longer rely solely on faster economic growth to address public finance problems, she said.