• The IMF warns that damaged energy infrastructure and restricted shipping could keep fuel prices elevated even after the Gulf conflict ends.
  • Higher borrowing costs are squeezing government budgets, prompting the IMF to call for credible deficit-reduction plans.
  • The IMF cautions that heavy borrowing by major technology companies could turn disappointing AI earnings into a wider global market shock.

The artificial intelligence boom is supporting global growth, but it is also adding to inflation.

With high energy prices and record government debt already weighing on the economy, rising AI investment is creating another challenge for policymakers, International Monetary Fund (IMF) chief Kristalina Georgieva warned.

Speaking in Singapore ahead of next week’s IMF and World Bank annual meetings in Bangkok, Georgieva described an economy facing two opposing forces: disrupted energy supplies from the Middle East conflict and rising demand linked to AI investment.

The benefits and costs are unevenly shared. Countries involved in the AI industry are gaining from the boom, while others face higher prices without the same boost to investment and growth.

Winter is Coming for Energy Prices

Oil prices have remained around $100 per barrel for a while now, above the $89 average that was expected in the IMF’s July forecast for 2026. Besides disrupted supply chains, damage to refining capacity has also pushed up the cost of energy products. ⁽¹⁾

Natural gas supplies face further pressure because shipping through the Strait of Hormuz remains threatened. With winter approaching, stronger heating demand could push natural gas prices higher.

Georgieva warned that high energy prices could persist even if the Gulf conflict ends soon. Repairing damaged infrastructure and restoring supplies will take time.

Georgieva also said the biggest growth downgrades would be in economies affected by war, including Ukraine and Gulf states. Infrastructure damage in Ukraine and disrupted energy exports in the Gulf have weakened economic activity. ⁽²⁾

The Cheap-Debt Era Leaves an Expensive Legacy

With inflation being high globally, another major concern is creeping up alongside it. Global public debt is at its highest level since World War II and is projected to exceed 100% of global economic output before 2030. Georgieva singled out advanced economies, led by the US, for their heavy debt burdens. ⁽³⁾

For years, governments benefited from interest rates that were below economic growth rates. That helped keep debt manageable. But all of that changed when global central banks hiked rates aggressively back in 2022 to fight inflation driven by economic stimulus programs and higher commodity prices.

Higher borrowing costs are now changing that picture, making it harder to reduce debt relative to the size of the economy. Governments also have less room to respond to another crisis as interest payments take up more of their budgets.

Georgieva urged heavily indebted countries to set out credible plans to reduce deficits. She warned that stronger growth alone would no longer be enough to solve their budget problems. ⁽⁴⁾

France is a major example of that concern. Its plan for issuing bonds worth €340 billion next year will finance the budget deficit and replace maturing debt. Refinancing older borrowing at higher rates increases the government’s interest bill, while concerns about France’s public finances have contributed to the euro’s recent weakness.

AI’s Big Bet Comes with a Big Bill

AI offers a substantial opportunity. IMF research suggests it could add up to half a percentage point to annual global growth if countries manage its development effectively.

AI hardware and related products already account for more than a tenth of world goods trade, Georgieva said. Investment could also exceed, as a share of the economy, earlier spending booms in railways, electricity networks and telecommunications. ⁽⁵⁾

But the benefits remain concentrated in a limited number of countries and companies. Economies outside the main AI supply chains risk falling further behind.

There is also a growing financial risk. High share prices depend on companies turning their spending into stronger productivity and profits. If earnings disappoint, heavy borrowing by major technology companies and widespread investment in US stocks could spread the impact across global markets. ⁽⁶⁾

The challenge is the gap between the large sums being spent today and the gains expected later.

Central Banks Pressured to Stay Firm

High energy costs, construction of AI data centers, tariffs and higher defense spending are all contributing to inflationary pressures, which is complicating efforts to slow down price increases.

Georgieva backed recent rate hikes by the Federal Reserve, the ECB and the BoJ. She urged central banks to remain focused on price stability and resist government pressure to make debt easier to finance.

Governments, meanwhile, need to improve workforce skills, strengthen energy security and simplify rules that make it difficult to start or close businesses.

Georgieva did not say whether the IMF would revise its July forecast of 3% global growth for 2026. Its new outlook will offer a clearer picture, but her message was direct: AI’s growth potential does not remove the need to address inflation and public debt. ⁽⁷⁾

Sources: ⁽¹⁾ ⁽²⁾ ⁽³⁾ Reuters, ⁽⁴⁾ ⁽⁷⁾ CNBC, ⁽⁵⁾ ⁽⁶⁾ AP News