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International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned on Wednesday that a sharp reversal in investor confidence in artificial intelligence could ripple through global markets and weaken economic growth.
Speaking in Singapore ahead of the IMF and World Bank annual meetings in Thailand, Georgieva said the global economy faces a positive AI demand shock alongside a negative energy supply shock.
Georgieva noted that AI could eventually generate up to an additional half a percentage point of annual global growth, while AI hardware and related products already account for more than 10% of world goods trade.
"AI lifts up global growth ... So if there is a slowdown there, it would be felt across the world," Georgieva said. "Equally, if there is loss of confidence and money runs away from AI, that can lead to financial stability risks."
At the same time, rising energy costs are adding another strain to the global economy. Georgieva pointed to oil prices of around $100 per barrel, with transport costs and other risks keeping prices elevated. She underscored that natural gas supplies from the Gulf remain severely impaired as shipping through the Strait of Hormuz faces threats.
Public finances are also under growing pressure. Global public debt is on track to exceed 100% of gross domestic product, reaching its highest level since the end of World War II, with advanced economies carrying some of the heaviest debt burdens.
Georgieva urged governments to stop putting off difficult fiscal decisions and move ahead with credible consolidation plans. She also called on central banks to maintain a prudently hawkish bias as AI investment, energy shocks and high public debt add to inflationary pressures.
She also pushed back against broad energy subsidies as governments try to shield households and businesses from the latest price shock.
"We have gone through a series of shocks," she said, listing Covid, the war in Ukraine, the inflation shock, rising interest rates and the current energy shock. Governments repeatedly responded by borrowing more and widening deficits, she added.
"That just cannot go on any longer," Georgieva added, pointing to higher interest rates and borrowing costs. Instead, governments should examine support measures more closely and "sharpen the targeting of this support," she said.
Beyond AI, energy and debt, the IMF is also preparing to help countries hit by El Nino, which Georgieva warned could worsen food security and inflation.
The climate pattern is already contributing to drought in Central America and severe disruptions to monsoon rains in parts of Asia, damaging crops in both regions.
"We are very concerned about the El Nino that is hitting this year," Georgieva said. "We are concerned about food security. We are concerned about pressure on inflation coming from that door, from the door of food becoming more and more expensive."
She warned governments with limited fiscal room to be cautious about how they deploy public funds, noting that some may have to rely on external financing. The IMF is preparing to step in if the shock hits vulnerable countries, she added.
The combination of El Nino and higher energy prices creates a "risk of dual exogenous shocks," Georgieva said, with Pacific island nations, Bangladesh and Laos among the countries facing greater exposure.
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