The world economy is being pulled in opposite directions by an artificial- intelligence investment boom and a destabilising energy-price shock.
The International Monetary Funds (IMF) Managing Director Kristalina Georgieva who warned on Wednesday added that record public debt is leaving nations with less room to respond.
Speaking at the curtain-raiser for the IMF–World Bank Annual Meetings in Singapore, Georgieva said policymakers would meet in Thailand next week amid “high uncertainty and rapid change.”
She identified three forces—the rapid arrival of AI, persistently high energy prices and elevated public debt—as the central challenges facing the global economy.
“The global economy is being pulled in two directions: a negative energy supply shock and a positive demand shock from AI,” Georgieva said, adding that the effects were being distributed unevenly across countries.
She said the largest growth losses this year were likely to be concentrated in economies affected by war, including Ukraine and the Gulf region, while energy-importing countries with limited fiscal capacity were also vulnerable.
At the same time, AI is rapidly reshaping trade and investment. Georgieva said global investment in AI relative to GDP could match or exceed the historic investment booms that built railways, electricity grids and telecommunications networks. AI hardware and related technology products now account for more than one-tenth of global goods trade, she said.
The benefits, however, are highly concentrated. The United States, China and India are major importers of AI hardware and are building infrastructure to become leading AI providers, while several other top AI economies are in Asia and supply advanced processors, memory chips, chip-making equipment and robotics.
“This drives forward today’s AI economies, but it largely bypasses most others,” Georgieva said, warning that the technology could widen inequality between countries unless access and preparedness improve globally.
The AI boom is also increasing demand for energy. Georgieva said higher energy costs were feeding into the prices of fertiliser, food and industrial inputs, adding to inflationary pressure and weakening growth.
Oil prices were around $100 a barrel, she said, while a structural global refining shortfall was adding a further cost of roughly $100 a barrel through the refining margin.
Natural-gas supplies from the Gulf remained severely impaired because of reduced liquefied-natural-gas transport options while shipping through the Strait of Hormuz remained threatened, she said. Asia and Europe were particularly exposed.
Even if the conflict in the Gulf ended soon, high energy prices could persist. Brent futures were pointing to elevated oil prices through 2027, Georgieva said, while the approach of the Northern Hemisphere winter could intensify demand and pressure countries to rebuild reserves.
The combination of energy costs, rising interest rates and heavy government borrowing is creating a further danger. Global public debt is close to its highest level since the aftermath of the Second World War and is on course to exceed 100% of global GDP, Georgieva said.
Higher bond yields are increasing debt-servicing costs just as governments face competing demands, including defence spending.
The favourable conditions of the past 17 years—when economic growth generally exceeded the interest rates paid on public debt—have now ended, she said.
“The size of the growth pick-up needed to reduce public debt-to-GDP ratios without fiscal effort looks out of reach in the near term,” Georgieva said.
She urged central banks to maintain a cautious, and in many cases “prudently hawkish,” approach to monetary policy because the AI construction boom, energy and food shocks, tariffs, defence spending and high public debt could all fuel inflation.
Georgieva also warned of financial- stability risks linked to the concentration of investment in AI. Share prices have been supported by strong corporate earnings, but disappointing results could expose leverage among major technology companies and trigger a broader market shock, particularly given the large global holdings of US equities.
Regulation and supervision should be the first line of defence, she said.
On fiscal policy, Georgieva called for credible medium-term consolidation plans in heavily indebted advanced economies, backed where necessary by early measures to ease pressure on central banks.
Emerging markets should rebuild fiscal space and strengthen foreign-exchange buffers, while low-income countries risk being forced to cut vital development spending as financing costs rise and aid flows shrink.
“We cannot keep delaying necessary policy action—you have the tools, now have the wisdom to use them,” she said.
Georgieva acknowledged that fiscal consolidation would be politically difficult after years in which governments repeatedly stepped in to cushion households and businesses from successive shocks.
She said successful reforms should explain the need for consolidation, protect vulnerable groups and limit damage to future growth.
Structural reforms—including better workforce skills, more flexible labour markets, easier business entry and exit, improved access to long-term capital and stronger energy security—could support both fiscal repair and AI adoption.
The IMF estimates that AI, if managed effectively, could eventually add up to half a percentage point to annual global growth. Georgieva said the difference between 3% and 3.5% growth over a decade would be comparable to adding an economy the size of ASEAN to the world economy.
But she warned that the benefits would depend on digital infrastructure, labour-market readiness, regulatory safeguards and broader international access.
AI also carries serious risks, including large-scale job losses, cyber threats, financial instability and the possibility that advanced systems could escape human control.
Praising Singapore’s top ranking in the IMF’s AI preparedness index, Georgieva said international cooperation was essential to ensure that the technology’s gains were widely shared.
“Countries cooperate not out of charity but out of self-interest,” she said, calling on policymakers to rely on sound institutions, prudent policies and collaboration as they navigate a period of profound economic change.