Oil prices remain at $100 a barrel, while impaired refining capacity has added another $100 in “crack-spread” margins per barrel for key products, including diesel, International Monetary Fund Managing Director Kristalina Georgieva said Wednesday. She warned that high energy prices, public debt and the artificial intelligence investment boom threaten the global economy, and urged governments to adopt protective fiscal and monetary measures. “It’s a serious set of risks,” she said.
Who Bears the Shock
Georgieva said the world faces a negative energy supply shock from conflicts in the Middle East and a positive demand shock from AI that is also fuelling inflation. “The combined impact of these two forces is highly uneven across the world,” she said, adding that the AI boom was bypassing many countries. They’re not sharing equally in that growth.
The IMF’s new growth forecasts, due during next week’s Annual Meetings in Bangkok, will show the biggest downgrades in economies ravaged by war. Ukraine’s civilian and economic infrastructure has suffered significant damage, while Iranian strikes have hit Gulf countries and sharply reduced their energy exports.
The IMF’s July forecast put global growth at 3.0% in 2026 and projected 3.4% in 2027. It assumed the Strait of Hormuz would start reopening in mid-July and return to pre-war conditions by March 2027. The forecast also assumed oil would average $89 a barrel in 2026 and $78 in 2027. Georgieva didn’t say whether the latest World Economic Outlook would change the 2026 forecast.
Winter heating demand is set to rise as threats to liquefied natural gas shipping through the Strait of Hormuz continue to restrict natural gas supplies. “Even if the war in the Gulf were to end soon, the problem of high energy prices will likely persist for some time,” Georgieva said. Brent crude futures predict high prices through 2027, she added. That’s a long stretch.
Debt, Rates and Government Policy
Higher energy prices are pushing up inflation, policy rates and benchmark bond yields, Georgieva said. Ten-year sovereign yields in the United States, Germany and Japan are at their highest levels since 2007, 2009 and 1996, respectively, and are still climbing. They haven’t stopped rising.
The IMF says public debt has reached its highest level since World War Two and is projected to exceed 100% of GDP before 2030. Georgieva called advanced economies, led by the United States, the “worst offenders,” saying their debt-to-GDP ratios exceed those of emerging markets and low-income countries. Policymakers can’t rely on higher growth alone to solve fiscal problems.
“And yet we don't see decisive action in the high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans,” Georgieva said. She said such plans could include upfront fiscal measures to take pressure off monetary policy. Inflationary pressures, she said, also reflect AI investment, energy and food price shocks, tariffs, higher defense spending and increased debt-service costs.
Georgieva said rate hikes by the U.S. Federal Reserve, the ECB and the Bank of Japan were “highly appropriate.” She called for central bank independence and warned against buying debt to ease fiscal burdens, describing that approach as “monetary cowboys, running to the rescue of the fiscal agents.” It’s not a safe bet.
AI Investment and Labor Risk
Georgieva said AI investment as a share of GDP is likely to exceed investment in railroads, electricity grids or telecommunications infrastructure. Rising economic and financial concentration is increasing pressure on AI companies to deliver productivity and earnings gains that justify high valuations. If markets are disappointed, she warned, the result could be “a far-reaching shock.”
IMF research suggests AI could add half a percentage point to annual global growth if developed and used well. Georgieva also cited “large-scale labor market fallout” among AI’s substantial perils, alongside serious cyber and stability risks and frontier models that could escape human control. She urged governments to strengthen workforce skills, build regulatory guardrails, improve energy security, streamline regulations and make it easier to start and wind down companies.
A Deutsche Bank poll found that a large majority of wealthy investors expected Asia to be the most geopolitically stable region over the next 12 months. Investors in the poll identified rates and yields as the biggest growth risk.