“The AI building boom is inflationary. The energy and food shocks are inflationary. Tariffs, defense spending, and high public debt can be inflationary,” Georgieva said. She called for a “prudently hawkish bias” on the part of central banks, and said countries that have gotten used to running large budget deficits are in for “some very tough political choices.”
Global governments must act urgently to address challenges from an unbalanced AI boom, a prolonged energy shock and record debt piles, the International Monetary Fund said as it prepares to host economy chiefs from around the world next week.
The rush to develop artificial intelligence is delivering a growth spurt that’s so far confined to a handful of countries, Managing Director Kristalina Georgieva said Wednesday in prepared remarks in Singapore ahead of the annual IMF-World Bank meetings in Bangkok next week.
Meantime the squeeze on key commodity supplies due to conflicts in the Middle East and Ukraine is set to continue into 2027, and soaring bond yields have left governments that amassed too much debt under mounting budget pressure, Georgieva said — calling advanced economies the “worst offenders” on the latter count.
“The AI building boom is inflationary. The energy and food shocks are inflationary. Tariffs, defense spending, and high public debt can be inflationary,” Georgieva said. She called for a “prudently hawkish bias” on the part of central banks, and said countries that have gotten used to running large budget deficits are in for “some very tough political choices.”
The weeklong Bangkok gathering of top finance ministers and central bank governors takes place against a backdrop of turbulence in sovereign debt markets, as yields on US, European and Japanese bonds hit multi-decade highs.
Total global debt has now surpassed $365 trillion, according to the Institute of International Finance.
“Policymakers had a relatively easy ride over the last 17 years as for all that time interest rates were stuck below GDP growth rates,” Georgieva said. “Higher interest rates now put an end to that.”
By contrast, the wave of AI investment — and expectations for the economic gains it will deliver — keeps propeling stocks to new highs, and has delivered record exports for Asia’s powerhouse producers of chips and other equipment.
The bond selloff got underway after the US and Israel attacked Iran in February, choking off fuel supplies and raising costs worldwide. Georgieva said the energy shock has been “large but contained” so far. But she warned that “price pressures may build further as demand rises with the approach of the Northern hemisphere cold season and as countries replenish reserves.”
The AI buildout is adding to energy demand, and it also risks widening economic inequalities, Georgieva said. “Growth in AI-related trade reflects the investment boom in economies embedded in its value chain,” she said, but “it largely bypasses most others.”