IMF Flags Escalating Cyber Risks and Potential AI-Driven Market Correction in Global Outlook

The International Monetary Fund issued a stark warning on Tuesday, identifying cyber threats as posing “elevated” risks to the global financial system. Concurrently, the institution voiced concern over the possibility of a market correction linked to artificial intelligence. According to the IMF, both scenarios carry the potential for “severe” consequences.

The cautionary message appeared in the Fund’s latest Global Financial Stability Report, published on the second day of its annual gatherings with the World Bank, held this year in Bangkok.

“These risks are plausible near-term catalysts for a sharp tightening of financial conditions and market turmoil,” the report said.

The recent boom in artificial intelligence – and the related rush to manufacture semiconductors and build data centres – has provided a boost to global growth despite geopolitical pressures including the Middle East war.

However, “growing evidence suggests that AI capabilities can be delivered at lower investment levels… or that potential economic gains may not be as large as expected,” the IMF warned.

“Weaker or less durable AI investments and profitability could be a shock that triggers a market correction.”

And while AI is increasingly a source of economic vitality globally, it is also presenting unprecedented risks, the Fund said.

“Severe cyber incidents could undermine market confidence and disrupt critical financial market infrastructure and operations,” it said.

The risks posed by cyber threats to the financial system are both “known and very much unknown”, Athanasios Vamvakidis, deputy director of the IMF’s Monetary and Capital Markets Department, told reporters after the report’s launch.

“The policy priority should be to strengthen resilience before new shocks hit the economy,” Vamvakidis said.

Cyberattack risk ‘worsening’

The report adds to growing worries about AI and its wide-ranging impact on labour markets, education and inequality.

In one widely covered incident in July, AI agents developed by US firm OpenAI hacked Hugging Face, an AI model and application library, as the autonomous software escaped its confined testing environment.

As AI capabilities continue to improve, the risk of successful cyberattacks on “critical financial institutions or market infrastructure” is getting “worse”, the IMF report said.

The “impact could be severe as rapid digitization has increased the attack surface”.

Cyber threats are more menacing in emerging markets that have not allocated sufficient resources for prevention, Caio Ferreira, deputy division chief at the IMF’s Monetary and Capital Markets Department, said at the news conference.

While frontier AI models could be used to stage such attacks, they also have a role to play in cyber defence, the report said.

Another growing risk to the global financial system is a spike in bond yields, which could trigger severe shocks due to the “foundational importance of sovereign bond markets”, the report said.

“Bond markets are susceptible to further rises in energy prices re-igniting inflation and forcing the tightening of monetary policy.”

Debt at sky-high levels

The Fund forecast that global growth this year would slow less than previously expected because advanced economies were showing “resilience” despite the rise in energy prices caused by the war in the Middle East.

But it said low-income countries were vulnerable to a supply shock.

In its World Economic Outlook (WEO) released at the organization’s Annual Meetings in Bangkok, the IMF raised its 2026 global growth forecast marginally to 3.1%, compared with 3.5% growth in 2025.

With global debt-to-GDP ratios at sky-high levels, including in advanced economies, the IMF has called on governments to cut spending and manage borrowing – a difficult task for those in the developing world struggling with the Iran war shock.

“What we are advocating for is for policymakers to balance the near-term needs of inflation, and that involves food security, that involves energy security… while also keeping in mind the medium-term stability,” said Deniz Igan, chief of the IMF’s World Economic Studies division, AFP reported.

‘Security considerations’

IMF managing director Kristalina Georgieva said at a panel discussion: “We have to recognise that the world that used to value only one thing, economic efficiency… now is a world in which security considerations have to be factored in.”

The United States’ war on Iran, launched in February, has plunged the Middle East into violence and seen global energy prices skyrocket as a result of Tehran’s retaliation.

Prices of refined petroleum products remain between 70 and 95% above pre-war levels, putting pressure on countries dependent on energy imports for economic activity.

On Monday night, blasts resounded across Saudi Arabia’s capital as the war’s impact widens into that country, with Iran-backed Yemeni Houthi forces hitting oil facilities, tankers and transport hubs.

Energy-importing countries not exposed to the AI boom remain the most vulnerable, creating what the IMF termed a “bifurcated outlook” in its WEO report.

The report detailed that the twin economic forces of the war in Iran and the AI technology boom had created a “fragmented” world economy.

“Headwinds from a prolonged war and persistent geopolitical tensions could revive inflationary pressures, strain fiscal and external positions, and hit energy-importing and low-income countries hardest,” it said.

Middle East hit, advanced economies up

The IMF’s split view of the world economy was evident in its specific projections.

The Middle East and Central Asia region – exposed directly to the Iran war – is expected to suffer a 0.3% contraction in 2026.

Saudi Arabia’s is one of the worst affected, with its economy projected to shrink 3.3% – a 5% cut in the Fund’s forecast.

The IMF said the region is expected to bounce back quickly once the war is over, but there remains high uncertainty as to when that will be.

In advanced economies, growth fuelled by the AI boom and other factors remained strong.

The world’s advanced economies were forecast to grow 2.1% in 2026, with those in the AI supply chain, such as Taiwan and South Korea, posting significantly higher figures.

But growth in China, the world’s second-largest economy, was expected to slow, the IMF said, because of weak domestic demand.

A years-long crisis in China’s once booming real estate sector has spooked consumers, dampening activity even as exports and high-tech sectors such as AI and electric vehicles boom.

In contrast, India received a significant upward revision of 0.6 percentage points for this year in the IMF report, with growth now expected to reach 7.0%.

Global inflation remained set to accelerate to 4.7% in 2026, with effects spread across advanced and developing economies.

Asia markets down

Asia’s tech-heavy markets slumped on Tuesday on fresh worries about the outlook for the AI investment boom, while European stocks gained thanks to a retreat in oil prices.

“Investors are increasingly worried that cracks are starting to show in the AI trade,” said Dan Coatsworth, head of markets at AJ Bell.

The selling in the tech sectors came after Hock Tan, chief executive of the US semiconductor giant Broadcom, likened the AI buying frenzy to gambling.

“A lot of investors have no clue what they are investing in,” Tan told a conference in Singapore, saying they “set very extreme expectations only to find out that it’s almost like they are in a casino”.

On the trading floors, South Korea’s Kospi stocks index tanked 5.5% by the close as chip titans SK Hynix and Samsung took a beating.

The decline also followed reports that China’s CXMT had made progress on new technology to boost memory chip density, which rival firms have also been racing to achieve.

The company is aiming to release a new server-memory product based on the structure by the end of the year, the reports said.

Japanese stocks also slumped, with chipmaker Kioxia tumbling more than 13% on the Nikkei 225, which lost 1.8%.

The selloff overshadowed a drop in oil prices that came even as Yemen’s Houthis stepped up their attacks on Saudi Arabia, fanning tensions in the Middle East and raising further concerns about supplies.

Key figures at around 1015 GMT

• London – FTSE 100: UP 0.8% at 10,738.49 points.
• Seoul – Kospi: DOWN 5.5% at 6,035.35 (close).
• Tokyo – Nikkei 225: DOWN 1.8% at 67,777.52 (close).
• Hong Kong – Hang Seng Index: UP 0.3% at 24,345.22 (close).
• Shanghai – Composite: UP 0.1% at 3,800.86 (close).
• New York – Dow: UP 0.4% at 51,850.55 (close).
• Brent North Sea crude: DOWN 1.9% at $104.58.
• West Texas Intermediate: DOWN 2.0% at $91.92 per barrel.
• Dollar/yen: DOWN at 158.01 yen from 158.68 yen.

Source link