IMF chief says global economy weathered Iran war shock well

The International Monetary Fund (IMF) has reported that the global economy has managed the disruption to energy supplies caused by the Iran war better than anticipated, despite some nations facing increasing fiscal pressures. IMF Managing Director Kristalina Georgieva addressed reporters ahead of an upcoming Group of 20 finance leaders meeting in Asheville, North Carolina.

She acknowledged a "tug of war" between the negative impact of reduced Gulf energy supplies and the growth benefits from an AI investment boom extending beyond the United States.

Georgieva described the global economy as resisting powerful headwinds from high debt levels, persistent inflation, and trade tensions. Various factors contributed to mitigating the energy crisis, such as countries drawing down oil and gas reserves, increasing non-Gulf energy supplies, lowering energy demand, expanding renewable energy capacity, and a shift back to coal power generation in certain regions.

Additionally, AI investment in the U.S. is bolstering corporate earnings and consumer spending, while other countries are expanding data center construction and AI hardware supplies, with Thailand noted as an example.

While the outlook for the global economy has become more balanced since April, it is still tilted in a negative direction. Georgieva highlighted mounting fiscal pressures, including rising bond yields and a stalled disinflation process, as key risks. She cautioned that a potential rise in oil prices could exacerbate inflation, compelling central banks to maintain a restrictive policy stance.

Georgieva emphasized that central banks must remain "laser-focused" on price stability. She also stressed the importance of all countries tackling fiscal issues and presenting credible plans to ensure their debt and deficits are on sustainable paths. Georgieva warned of potential risks to financial stability associated with the AI future, including the possibility of low-income countries falling behind.