Global economy tossed between crises and AI opportunity, says IMF chief

The International Monetary Fund's chief, Kristalina Georgieva, likened the global economy to a "storm-tossed vessel" caught between economic challenges and AI-driven growth. In July, the IMF reduced its global growth projection for the second consecutive year, citing uncertainty and risks associated with the Middle East war. Currently, global economic growth is projected at 3% this year, down from 3.1% in April.

Georgieva explained that the war's impact has been asymmetric, depending on a country's exposure to Gulf oil imports and its overall macroeconomic stability. High energy prices, primarily driven by geopolitical tensions, are causing a tug of war between global inflation and AI's positive demand shock, spurred by significant investments in the new technology.

While the outlook remains tilted to the downside and uncertainty remains high, Georgieva warned that energy demand will surge with the onset of winter in the northern hemisphere, potentially leading to another price spike. This suggests that the energy shock is far from over. Georgieva emphasized that a renewed rise in oil prices could stoke inflation, compelling central banks to maintain a tight monetary policy, which could have far-reaching implications on debt service costs and economic activity.

Despite the economy's resilience to the Iran war's shock, Georgieva cautioned against complacency. She urged countries to tackle fiscal imbalances, particularly debt, and for central banks to prioritize inflation control. Georgieva acknowledged the significant unknowns surrounding AI but noted that its positive effects are being felt in more countries than just the United States, which currently leads in technology.