The global economy has handled the oil shock triggered by the closure of the Strait of Hormuz "better than feared," supported by several factors such as a surge in investment in artificial intelligence, according to IMF Managing Director Kristalina Georgieva.
What began as a US-led surge in artificial intelligence has now evolved into a driver of worldwide economic growth, as more countries accelerate the building of data centers and related infrastructure, Georgieva said to reporters on Tuesday.
She stated that the global economy had handled the energy shock triggered by the closure of the Strait of Hormuz better than anticipated, thanks to several factors, including the use of oil and gas reserves and a rise in supply from outside the Gulf.
She noted that the global economy is also benefiting from the momentum of a surge in AI-related investments, particularly in the United States, where corporate profits and consumer spending continue to be robust, speaking ahead of next week’s G-20 finance ministers’ meeting in Asheville, North Carolina.
She noted that the global economy is experiencing a tug-of-war between the negative supply shock originating in West Asia and the positive demand shock driven by AI.
“The net impact of these two forces is asymmetric across countries and depends on their exposure to energy disruptions, macroeconomic vulnerabilities, and their position in the AI chain,” Georgieva said.
Georgieva noted that, compared with the Spring Meetings, risks to the outlook are now more evenly balanced, though they still lean to the downside and uncertainty remains elevated.
She noted that growing fiscal strains, reflected in climbing bond yields, along with a halted disinflation trend, are causing concern among both market participants and policymakers.
The head of the IMF stated that oil and gas reserves are dwindling and that winter in the northern hemisphere will arrive soon.
She noted that this indicates the energy shock is still ongoing: another upswing in oil prices could drive inflation higher, compelling central banks to maintain a tight policy stance, which would in turn affect debt servicing costs and overall economic activity.
Georgieva noted that the future effects of AI are still highly uncertain, particularly regarding potential threats to financial stability.
“Should the outlook deteriorate, it will further widen the dispersion of growth prospects around the world. Some countries, especially low-income countries that depend on fuel imports, are already in a tough spot,” she said.
Georgieva stated that in low-income countries, interruptions in the supply of oil, gas, and other essential commodities like fertilizer could lead to food insecurity, a situation that may be further worsened by extreme weather.
She noted that the danger of lagging in AI development is especially pronounced in developing countries.
In July, the IMF cut its global growth projection for 2026 to 3 per cent, cautioning about downside risks stemming from the conflict in West Asia, increasing trade fragmentation, and uncertainties related to artificial intelligence.
The institution is scheduled to issue its next update to the growth forecast in mid-October, coinciding with the IMF and World Bank annual meetings in Bangkok.
