Washington: The global economy is being pulled between an artificial intelligence investment boom and an energy supply shock while governments grapple with record public debt, IMF Managing Director Kristalina Georgieva warned Wednesday, calling for urgent policy action to confront the competing pressures.
Georgieva said AI, persistently high energy prices and record levels of public debt would dominate discussions when finance ministers and central bank governors from the IMF’s 191 member countries gather in Thailand next week for the IMF-World Bank Annual Meetings.
“To put it simply, the global economy is being pulled in two directions: a negative energy supply shock and a positive demand shock from AI,” Georgieva said in a curtain-raiser speech in Singapore.
“The combined impact of these two forces is highly uneven across the world.”
The IMF’s World Economic Outlook, to be released next week, will show that the largest blows to growth this year have been suffered by economies affected by wars, including Ukraine and the Gulf.
Other vulnerable economies, particularly those dependent on energy imports and with limited capacity to cushion shocks, have also suffered.
AI, meanwhile, is rapidly reshaping investment, trade and countries’ relative economic prospects.
“Love it, hate it, or fear it, AI is here, rapidly becoming a key driver of countries’ relative fortunes in the world economy,” Georgieva said.
She said global investment in AI relative to GDP was likely to reach and exceed the amounts invested historically in building railways, electricity grids or telecommunications networks.
AI hardware and related technology products already account for more than one-tenth of global goods trade, according to IMF estimates.
The United States, China and India are net importers of AI hardware and are building infrastructure to become key AI providers, Georgieva said. Five of the other seven economies in the global top 10 are in Asia.
But she warned that the boom was largely bypassing many other countries, raising the danger of widening global economic inequality.
Energy presents the opposite pressure.
Oil prices remain around $100 a barrel despite a tentative recovery in flows from the Gulf, while a structural shortage in global refining capacity has pushed diesel and other refined-product prices to record levels, Georgieva said.
Natural gas supplies from the Gulf also remain severely impaired as threats to shipping through the Strait of Hormuz constrain LNG transportation, with Asia and Europe particularly affected.
“And, to quote from Game of Thrones, winter is coming,” Georgieva said, warning that energy price pressures could intensify as Northern Hemisphere demand rises and countries replenish reserves.
Even an early end to the Gulf conflict would not necessarily quickly resolve the problem. Brent futures indicate high oil prices could persist through 2027, she said.
The third major challenge is government finances.
Global public debt is near its highest level since the aftermath of World War II and is on course to exceed 100 per cent of GDP, with advanced economies carrying some of the heaviest debt burdens.
Higher interest rates are making those debts increasingly expensive to service.
Georgieva warned policymakers against assuming that stronger future growth, including productivity gains from AI, would solve fiscal problems without difficult policy decisions.
“We cannot keep delaying necessary policy action—you have the tools, now have the wisdom to use them,” she said.
She also said the AI investment boom, energy and food shocks, tariffs, defence spending and high public debt could all contribute to inflationary pressure.
“Now may be a good time for a prudently hawkish bias in many countries’ monetary policy,” Georgieva said.
Despite the risks, she said AI could provide a substantial longer-term lift to the global economy if managed properly.
(IANS)
