IMF chief Kristalina Georgieva says the global economy has proved more resilient than feared to the Gulf energy shock, but rising bond yields, sticky inflation and mounting debt risks threaten the outlook.
The global economy is proving more resilient than expected in the face of the energy shock linked to the Iran war and the closure of the Strait of Hormuz, but growing fiscal pressures and stubborn inflation remain key risks, International Monetary Fund Managing Director Kristalina Georgieva said.
Speaking ahead of next week’s G20 finance leaders’ meeting, Georgieva said the global economy was caught in a “tug of war” between the drag from higher Gulf energy prices and a boost from the artificial intelligence investment boom.
She said the risks to the global outlook were more balanced than in April, but remained tilted to the downside. Rising bond yields, high debt levels and the possibility that central banks may need to keep monetary policy tight could weigh on growth, she said.
“Global growth is resisting powerful headwinds from high debt levels, stubborn inflation, and trade tensions,” Georgieva said, adding that the economy had so far weathered the Strait of Hormuz energy shock better than the IMF had feared.
Several factors have helped cushion the impact, including countries drawing down oil and gas reserves, higher supplies from outside the Gulf, weaker energy demand and greater renewable energy capacity. Some countries have also increased coal-fired power generation.
AI boom offers support
Georgieva said strong investment in artificial intelligence was providing an important counterweight to the energy shock.
More from BusinessAI investment in the United States is supporting corporate earnings and consumer spending, while other economies are increasing spending on data centres and AI hardware, she said.
The IMF did not issue a fresh growth forecast. In July, it cut its 2026 global growth projection to 3%, citing risks from the Middle East conflict, trade fragmentation and uncertainty surrounding the AI investment boom.
The IMF is due to update its global growth outlook in October during its annual meetings in Bangkok.
Energy shock is not over
Georgieva cautioned policymakers against assuming that the energy crisis has passed.
Brent crude prices have remained around $80-$90 a barrel since mid-June, below their spring peak of more than $118. But a renewed surge in oil prices could push inflation higher and force central banks to maintain restrictive monetary policies.
“The energy shock is not over,” Georgieva said.
Higher interest rates for longer could also increase debt-servicing costs and weigh on economic activity, adding to pressure on countries already facing stretched public finances.
IMF flags fiscal risks
Georgieva urged governments to address deteriorating fiscal conditions and produce credible plans to bring debt and deficits onto sustainable paths.
Her comments come after a sharp rise in US long-term Treasury yields, which recently reached their highest level in 19 years. The IMF has repeatedly urged Washington to reduce its widening fiscal deficit.
Georgieva also called on central banks to remain “laser-focused” on price stability despite the risk that tighter monetary policy could weaken economic growth.
She warned that persistent inflation could limit policymakers’ ability to cut interest rates even as governments and economies face higher borrowing costs.
Global imbalances add to pressure
The IMF chief also called for countries to address excessive global economic imbalances, which she said were contributing to trade tensions.
A more balanced economic model would strengthen global growth, Georgieva said, while acknowledging that achieving such a balance is becoming harder as the world economy grows more fragmented.
The IMF is working on a deeper assessment of the forces driving global imbalances, including the interaction between macroeconomic trends, trade policies and industrial policies.
For now, the global economy appears to have absorbed the latest energy shock better than expected. But with oil prices vulnerable to renewed disruption, inflation still sticky and government debt elevated, the IMF is warning that the resilience could be tested again.
