IMF Chief Warns AI Boom, Public Debt and Energy Shocks Threaten Global Growth

Global public debt is heading toward 100% of gross domestic product before 2030, a level last seen after World War II, according to International Monetary Fund Managing Director Kristalina Georgieva. Speaking in Singapore on Oct. 7 ahead of the IMF and World Bank annual meetings in Bangkok, Georgieva warned that countries can no longer rely on higher growth rates alone to solve fiscal problems.

Public Debt Reaches Post-War Highs

The IMF warns that worldwide public debt is approaching historic highs, with developed economies singled out as the worst offenders. Georgieva stated that high-debt advanced economies are failing to take decisive action, noting an urgent need for credible medium-term fiscal consolidation plans.

Borrowing costs are climbing across major markets. 10-year government bond yields in the United States, Germany, and Japan have reached their highest levels since 2007, 2009, and 1996 respectively. Public debt is at record levels and its consolidation can no longer be postponed as energy shocks, inflation, and rising yields take their toll on fiscal policies.

Energy Shocks and AI Pull Global Economy in Opposite Directions

Artificial intelligence is creating a positive demand shock while the Iran war is causing a negative energy supply shock, dragging the worldwide economy in contrasting directions.

High energy prices resulting from the conflict are likely to persist, with Brent futures predicting high oil prices through 2027. Georgieva cautioned that price increases could accelerate further as countries restock their supplies and demand climbs with the approach of colder weather in the Northern Hemisphere.

At the same time, the artificial intelligence building boom is driving strong corporate earnings and pushing stock prices to record highs, alongside higher inflation. AI hardware and related technology products account for more than a tenth of global trade in goods. Georgieva highlighted that seven out of the ten leading nations in AI-associated commerce are situated in the Asia-Pacific territory, which has expanded its portion of worldwide economic output from 25% in 1991 to 43%.

Georgieva Supports Hawkish Monetary Policy Ahead of Bangkok Meetings

Georgieva described recent interest rate hikes by the U.S. Federal Reserve, the European Central Bank, and the Bank of Japan as highly appropriate. She stated that now may be a good time for a prudently hawkish bias in many countries’ monetary policy.

Finance ministers and central bank governors from 191 IMF-World Bank member countries will gather in Bangkok next week to assess the state of the world economy. The IMF is scheduled to publish its updated global growth forecasts and revision of previous estimates on Oct. 13.