International Monetary Fund (IMF) President Kristalina Georgieva spoke in Singapore before the IMF-World Bank Annual Meetings to be held in Thailand.
Drawing attention to three main dynamics that strain the global economy in her speech, Georgieva warned against the imbalances brought by artificial intelligence, high energy prices and record public debts.
Georgieva stated that the global economy is going through a period of great uncertainty and rapid change with artificial intelligence, energy prices and public debts, and reiterated her call for urgent policy steps to raise low growth rates.
Stating that global public debt will exceed 100 percent of GDP, Georgieva asked governments to implement urgent budget discipline and prepare for artificial intelligence.
Pointing out that the global economy is experiencing a negative energy supply shock resulting from the Middle East conflicts on one side, and a positive demand shock resulting from artificial intelligence that fuels inflation on the other, Georgieva said, "The combined effect of these two forces is distributed quite unequally across the world." he said.
Georgieva emphasized that the acceleration of artificial intelligence has touched many countries and this has deepened global economic inequality.
Stating that the biggest downward revisions in the new IMF growth forecasts to be announced at the Bangkok meetings will be in economies damaged by war, Georgieva said that these include Ukraine, whose civil and economic infrastructure was seriously damaged, and the Gulf countries, which were affected by Iran's attacks and whose energy exports dropped sharply.
Reminding that these predictions were made with the assumption that the Strait of Hormuz will be reopened, Georgieva stated that oil remained at the level of 100 dollars per barrel and the lack of refining capacity created an additional margin (crack-spread) of 100 dollars in products such as diesel.
Georgieva said, "Even if the war in the Gulf ends tomorrow, the problem of high energy prices will remain in our lives for a while." he said.
GROWING DEBT BURDEN
Noting that high energy prices increase inflation, policy rates and bond yields, Georgieva stated that the 10-year bond interest rates of the USA, Germany and Japan are at historical highs.
Describing the developed economies led by the USA as "countries with the worst record" regarding the debt burden, Georgieva pointed out the lack of reliable budget discipline plans that would relieve the pressure on monetary policy.
Saying that inflationary pressures are fed by artificial intelligence investments, defense expenditures and high debt service costs, Georgieva made the following call to leaders:
"My message to the world's economic decision-makers next week will be this. We cannot continue to delay taking the necessary policy steps. You have the tools, now have the wisdom to use them. To succeed, it is necessary to explain to the public why budget discipline is necessary, to make plans that protect the most vulnerable, and to pursue complementary structural reforms. Yes, growth alone cannot solve fiscal problems, but growth certainly helps."
ARTIFICIAL INTELLIGENCE COULD CONTRIBUTE TO THE GLOBAL ECONOMY THE SIZE OF ASEAN
Stating that the share of investment in artificial intelligence in GDP will exceed the share of investments in railways or electricity networks and that it will make a great contribution to global efficiency if structured correctly, Georgieva said:
"IMF research shows that, if done right, AI could add as much as half a percentage point each year to global growth over time. Think about it, going from 3 percent to 3.5 percent of growth would mean adding an economy the size of ASEAN (Association of Southeast Asian Nations) to the world economy over a ten-year period. We know that AI preparedness, including digital infrastructure, labor market readiness and regulatory corridors, is key. This will help us capture the benefits of AI and manage its risks."
Pointing out that artificial intelligence carries mass workforce loss and cyber risks as well as the opportunities it offers, Georgieva stated that Singapore ranks at the top of the IMF's artificial intelligence readiness index and praised the country's leadership in this field.
Georgieva added that governments should quickly implement structural reforms that will improve workforce skills, facilitate companies' entry and exit from the market, increase energy security and reduce bureaucracy, while maintaining their budget power.
