IMF Chief: Global Economy Weathers Energy Shock, Fiscal Strains Loom
IMF's Georgieva says the global economy has coped with the Gulf energy shock better than expected, but fiscal pressures and inflation risks remain.
International Monetary Fund Managing Director Kristalina Georgieva said on Tuesday that the global economy has absorbed the energy shock from the Iran war more smoothly than anticipated, though she flagged growing fiscal strains in several countries.
Speaking ahead of next week's Group of 20 finance leaders meeting in Asheville, North Carolina, Georgieva described a "tug of war" between the negative supply shock from the Gulf and the positive momentum from an artificial intelligence investment boom that is now spreading beyond the United States.
Global growth is "resisting powerful headwinds from high debt levels, stubborn inflation, and trade tensions," she said, adding that the closure of the Strait of Hormuz has been weathered better than feared due to several factors. These include drawdowns of oil and gas reserves, increased non-Gulf energy supplies, lower energy demand, expanded renewable capacity, and a partial shift back to coal in some regions.
Georgieva noted that risks to the global outlook are more balanced than in April but still tilted to the downside, citing mounting fiscal pressures and the possibility that central banks may keep monetary policy tight to control inflation. She pointed to rising bond yields and a stalled disinflation process as evidence of deteriorating fiscal conditions in some economies.
On the positive side, AI investment in the U.S. is supporting corporate earnings and consumer spending, while other countries are accelerating data-center construction and AI hardware production, she said.