AI: The Double-Edged Sword Shaping Global Economic Outlook, IMF Chief Warns

NEW YORK, NEW YORK – SEPTEMBER 22: Kristalina Georgieva, managing director for the International Monetary Fund, speaks onstage during “Semafor: The Next 3 Billion” at Convene on September 22, 2026 in New York City.

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SINGAPORE — The technology that investors and governments are counting on to lift the global economy is also creating pressures that threaten growth, IMF Managing Director Kristalina Georgieva warned, urging policymakers to confront difficult debt decisions rather than postpone them.

Managing Director Kristalina Georgieva told the audience at a Wednesday event in Singapore that artificial intelligence is “rapidly becoming a key driver of countries’ relative fortunes in the world economy.”

However, the convergence of rapid AI advancement, soaring energy costs, and record public debt is challenging an already “underwhelming” growth outlook for this decade.

“Love it, hate it, or fear it, AI is here,” Georgieva said.

Tugged in two directions

Speaking ahead of a series of IMF and World Bank annual meetings that kick off next week, Georgieva framed the global economy as being tugged in two opposite directions: a “negative energy supply shock” from the war in the Gulf, now in its eighth month, and a “positive demand shock” from the AI investment boom. The combined effect, she said, is “highly uneven across the world.”

On the upside, global AI investment as a share of GDP will reach, and likely exceed, the amounts that went into building the railroads, electricity grid, or telecommunications network. AI hardware and related technology products already account for more than a tenth of world goods trade, she said.

The IMF estimates that AI could add up to half a percentage point to annual world growth if implemented effectively. “Going from 3% to 3.5% over a decade — that is like adding an economy the size of ASEAN to the world economy,” Georgieva said.

But the benefits are likely highly concentrated. The boom largely bypasses economies that are less involved in the global AI supply chain, “increasing the risk of widening economic inequality across the globe,” she said.

The boom also fuels inflation concerns that have been a persistent challenge for policymakers across the U.S., Europe, and Asia. “The AI building boom is inflationary,” she said, as are energy and food shocks, tariffs, and defense spending.

Oil prices have remained above $100 per barrel as the Middle East conflict continues with few signs of a diplomatic resolution. Retail diesel prices have also climbed to record highs as refining capacity strains energy supplies.

These inflationary pressures are feeding directly into bond markets, pushing yields in the U.S., Germany, and Japan to their highest levels in decades. Meanwhile, a surge in long‑term private bond issuance by AI‑related borrowers is competing with governments for capital, though part of the increase may reflect expectations of faster growth, Georgieva noted.

The debt problem

Global public debt is now at its highest level since World War II and is on track to surpass 100 % of GDP, with advanced economies the “worst offenders,” Georgieva said. For 17 years, governments enjoyed “a relatively easy ride” because interest rates stayed below growth rates. “Higher interest rates now put an end to that,” she observed.

The interest‑to‑growth differential is now “much less favourable” and “set to climb higher,” she said, meaning the growth required to lower debt ratios without fiscal tightening is “out of reach in the near term.”

The pressure is already evident in Europe, where spreads over German bunds are widening not only for France and Italy but also for Ireland, Portugal, and other nations that had reduced debt and deficits after the euro‑area crisis.

After a series of shocks that have ballooned public debt and left most countries’ fiscal deficits above pre‑pandemic averages, “fiscal space is crying out for replenishment,” Georgieva said.

AI risk underpriced

Georgieva also highlighted a financial‑stability risk embedded in the AI boom itself. Strong corporate earnings are driving share prices and wealth effects, she said, but “should earnings fall short, however, hyperscaler leverage and large and growing global holdings of U.S. equities could turn a disappointment into a far‑reaching shock.”

Citing Amara’s Law, which holds that people overestimate a new technology in the short run and underestimate it in the long run, she said it is “somewhere in the transition between today’s AI building boom and tomorrow’s arrival of AI’s benefits that we will traverse the period of maximum risk.”

Georgieva said the first line of defense is regulation and supervision. “Now may be a good time for a prudently hawkish bias in many countries’ monetary policy,” she said.

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