Why AI is both the hope and the hazard for world leaders, according to IMF chief Georgieva
The technology that investors and governments are counting on to lift the global economy is also adding pressure that threatens growth, the head of the International Monetary Fund said, urging policymakers to stop delaying painful choices on debt. Managing Director Kristalina Georgieva told the audience at a Wednesday event in Singapore that artificial intelligence is ...
International Monetary Fund (IMF) chief Kristalina Georgieva highlighted the dual nature of artificial intelligence (AI) for world leaders at a recent event in Singapore. On one hand, AI is seen as a powerful driver of economic growth, with the potential to add around half a percentage point to annual global growth if managed correctly.
In fact, AI investment as a share of GDP is expected to reach and possibly surpass the investment levels that fueled the development of the railroads, electricity grid, or telecommunications networks. This rapid advancement of AI technology is now a key factor in determining a country's relative position in the global economy.
However, Georgieva cautioned that AI is also a significant challenge, coming alongside soaring energy costs and record public debt. The combination of these factors, particularly the "negative energy supply shock" from the ongoing conflict in the Gulf and the "positive demand shock" from AI investment, is creating uneven growth across the world.
While AI investment has grown strongly, it is disproportionately benefiting economies deeply integrated into the global AI supply chain, potentially exacerbating economic inequality. Moreover, the rapid growth of AI hardware and related technology products is feeding inflationary pressures, as oil prices remain above $100 per barrel due to the Middle East conflict and retail diesel prices hit record highs.
These inflationary pressures, combined with record public debt nearing its highest level since World War II, are straining bond markets and making it increasingly difficult for governments to reduce debt ratios without resorting to fiscal measures. The interest-to-growth differential has narrowed, making growth necessary for debt reduction less attainable in the short term.
Georgieva highlighted the potential financial stability risks associated with the AI boom, citing the overvaluation of corporate earnings and the risk of a shock if earnings fail to meet expectations.
To address these challenges, Georgieva emphasized the need for regulation and supervision in the AI sector, suggesting that countries might consider a more cautious approach to monetary policy. The AI building boom is still in its early stages, and the period of maximum risk lies in the transition between the current AI investment boom and the eventual realization of AI's full benefits.
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