The global economy is facing growing risks from persistently high energy prices, record levels of public debt and uncertainty surrounding the artificial intelligence investment boom, International Monetary Fund Managing Director Kristalina Georgieva warned.
Speaking ahead of next week’s IMF and World Bank Annual Meetings in Bangkok, Georgieva said governments must adopt stronger fiscal and monetary policies to protect their economies from increasing pressures.
She described the global economy as being pulled in two opposing directions: a negative energy supply shock caused by conflicts in the Middle East and a positive demand shock from artificial intelligence investment that is also contributing to inflation.
“The combined impact of these two forces is highly uneven across the world,” Georgieva said, adding that many countries are being left behind by the AI boom.
Energy Prices Continue to Pressure Growth
The IMF’s upcoming economic forecasts are expected to show the largest growth downgrades in economies directly affected by war.
These include Ukraine, which has suffered extensive damage to civilian and economic infrastructure, as well as Gulf countries impacted by Iranian strikes and reduced energy exports.
Georgieva did not indicate whether the IMF would revise its previous global growth forecast of 3% for 2026, which was released in July. The forecast had assumed that disruptions in the Strait of Hormuz would ease and energy markets would gradually return to normal conditions.
The IMF previously projected global growth would recover to 3.4% in 2027, based on assumptions that oil prices would average $89 per barrel in 2026 and $78 per barrel in 2027.
However, Georgieva said oil prices remain around $100 per barrel, while reduced refining capacity has increased margins for key products such as diesel.
She warned that winter energy demand could add further pressure, particularly as natural gas supplies remain vulnerable due to risks affecting LNG shipping routes through the Strait of Hormuz.
“Even if the war in the Gulf were to end soon, the problem of high energy prices will likely persist for some time,” Georgieva said.
Higher energy costs are contributing to rising inflation, interest rates and government bond yields. She noted that 10-year sovereign yields in the United States, Germany and Japan have reached their highest levels since 2007, 2009 and 1996, respectively.
Rising Government Debt Creates Additional Pressure
Another major concern for policymakers is the growing burden of public debt, which Georgieva said is weakening economic growth and adding inflationary pressure.
The IMF estimates that global public debt is at its highest level since World War Two and could exceed 100% of global GDP before 2030.
Georgieva highlighted advanced economies, particularly the United States, as facing some of the largest debt challenges, with debt-to-GDP ratios exceeding those of many emerging and developing economies.
She said governments can no longer rely solely on stronger economic growth to solve fiscal challenges.
“We don’t see decisive action in the high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans,” Georgieva said.
She added that inflation pressures remain persistent due to several factors, including AI investment, energy and food price shocks, tariffs, higher defence spending and increased debt servicing costs.
IMF Calls for Careful Monetary Policy
After years of above-target inflation, Georgieva said many countries may need to maintain a cautious approach to monetary policy.
She said recent interest rate increases by the U.S. Federal Reserve, European Central Bank and Bank of Japan were appropriate given current economic conditions.
According to Georgieva, central banks should continue focusing on price stability and clearly communicate their commitment to controlling inflation.
She also warned against governments pressuring central banks to reduce fiscal burdens through policies such as purchasing government debt.
“I would call this monetary cowboys, running to the rescue of the fiscal agents, and my message is: please don’t,” she said.
Artificial Intelligence Creates Opportunities and Risks
Georgieva also highlighted the risks surrounding the rapid expansion of artificial intelligence investment, which she said could surpass previous major infrastructure investment cycles such as railroads, electricity networks and telecommunications.
The concentration of investment and economic power in AI companies is increasing pressure on businesses to deliver productivity gains and earnings growth that justify high valuations.
She warned that disappointment in AI-related markets could trigger a broader economic shock.
However, Georgieva said IMF research suggests that AI could increase global economic growth by around half a percentage point annually if implemented effectively.
She emphasized the importance of AI preparedness, including regulations designed to address risks such as labour market disruption, cybersecurity threats, financial instability and advanced AI systems operating beyond human control.
Structural Reforms Needed for Long-Term Growth
Beyond fiscal discipline, Georgieva called on governments to pursue reforms that improve economic resilience and productivity.
She highlighted the importance of developing workforce skills, making it easier to create and close businesses, strengthening energy security and reducing unnecessary regulations.
According to the IMF chief, these measures will be essential for countries seeking stronger growth while navigating higher energy costs, elevated debt levels and the rapid transformation driven by artificial intelligence.
