Kristalina Georgieva, chairman of the International Monetary Fund (IMF), said that the global economy is caught in a tug-of-war between energy shocks, artificial intelligence (AI) boom, and high debt levels. The global public debt-to-gross domestic product (GDP) ratio is expected to exceed 1 times soon. These countercurrents will test the resilience of countries.
George Ava said in a speech in Singapore on the 7th that the above three major countercurrents will be the core issues discussed by finance ministers and central bank governors at the annual meeting of the IMF and World Bank Finance Ministers to be held in Bangkok, the capital of Thailand, next week. “Whether the world can improve its dismal economic growth this decade will depend on our ability to successfully manage three major headwinds: the rapid rise of AI, persistently high energy prices, and record levels of public debt,” she said.
Conflict in the Middle East has triggered a longer-than-expected energy crisis, further exacerbating global inflation and creating another wave of supply shocks amid continued disruption from the Russia-Ukraine war. This has forced many central banks to raise interest rates and triggered market expectations for further interest rate increases in the future.
Tight financial conditions have intensified market concerns about the fiscal conditions of advanced economies such as the United States, Japan, and Germany, pushing their 10-year government bond yields to multi-decade highs and sounding alarm bells in the bond market. "Higher bond yields are pushing up interest costs at a time when budgets are tight and competing spending, including defense," she said.
Georgeeva said that at present, measures such as diversifying energy sources and activating strategic oil storage have suppressed the energy market turbulence caused by the Middle East conflict. However, crude oil transportation in the Persian Gulf remains unstable, and crude oil prices remain at around US$100 per barrel. "Given the structural shortage of global refining capacity, we will face retail prices of diesel and other refined oil products hitting record highs." Natural gas supply in the Persian Gulf is still severely disrupted, and the impact on Asia and Europe is particularly severe.
Indicators such as the Purchasing Managers Index (PMI) show that the manufacturing industry is relatively resilient to this wave of shocks. However, as energy and other input costs continue to rise, there is ultimately a limit to the profit pressure that companies can absorb. Many companies have begun passing these costs on to consumers, adding to inflationary pressures and a conundrum that has no easy fix.
Georgeeva pointed out that even if the conflict in the Middle East can end soon, the problem of high energy prices may continue for a period of time, and believes that Brent crude oil futures prices will continue to rise in 2027; and as energy prices push up inflation, policy interest rates and benchmark bond yields have also risen. The 10-year government bond yields of the United States, Germany and Japan have respectively risen to the highest in decades, and are expected to continue to rise.
