BANGKOK, Oct 13 – The International Monetary Fund has warned that the global economy faces mounting risks from a potential reversal in artificial intelligence investment, rising government debt and a prolonged conflict in the Middle East. Although strong spending on AI infrastructure has helped support economic activity, the IMF cautions that a sudden loss of confidence in the technology sector or a sustained increase in energy prices could weaken growth and trigger broader financial market disruptions.
In its latest economic outlook, released in Bangkok on Tuesday, the IMF projected global economic growth of 3.1% in 2026, slightly above its previous forecast of 3.0% issued in July. The fund expects growth to reach 3.4% in 2027, provided that disruptions to global energy supplies ease and shipping conditions gradually return to normal.
However, the improved forecast depends heavily on assumptions about developments in the Middle East. The IMF expects the Strait of Hormuz to reopen by March, with shipping conditions returning to their pre-war situation by October 2027. A prolonged conflict that keeps oil prices above $130 per barrel through the first quarter of next year could reduce global growth in 2027 by 0.5 percentage point, underscoring the vulnerability of the world economy to sustained energy market disruptions.
The warnings came as policymakers, finance officials and central bankers gathered in Bangkok for the annual meetings of the IMF and World Bank. Discussions have focused on the challenges of maintaining economic stability while governments face higher borrowing costs, geopolitical uncertainty and growing dependence on investment in emerging technologies.
AI Investment Boom Raises Concerns About Market Stability
The IMF has identified a sharp decline in artificial intelligence investment as a significant downside risk to the global economic outlook. Spending on data centers, computing infrastructure and other AI-related projects has supported economic activity, particularly in the United States. However, the fund warns that expectations surrounding the technology could prove too optimistic if companies struggle to generate sufficient revenue from their investments.
In a downside scenario outlined by the IMF, a steep reduction in AI investment could trigger falling asset prices and weaken economic activity worldwide. The resulting shock could reduce global gross domestic product by 1.1% by 2028, while US economic output could fall by 1.8%.
IMF Managing Director Kristalina Georgieva highlighted the concentration of economic support in the technology sector, warning that the global economy has become increasingly dependent on AI-related investment. Speaking at a Bretton Woods Committee event, she questioned what might happen if investor expectations were disappointed and the sector experienced a significant setback.
The concern is not limited to technology companies or investors in publicly traded shares. A sudden reversal could affect businesses that have borrowed heavily to finance AI infrastructure, as well as lenders and investors counting on future earnings to justify current valuations.
Jason Wu, assistant director of the IMF’s Global Markets Analysis Division, said the financial consequences could become more serious if doubts emerge about whether AI investments can generate sufficient commercial returns. Under such circumstances, equity valuations could decline, companies could struggle to meet debt obligations and anticipated future revenues might fail to materialize.
An AI market correction could also spread into the wider economy through declining household and business wealth. Athanasios Vamvakidis, deputy director of the IMF’s Monetary and Capital Markets Department, warned that falling asset values could weaken demand as households and companies become more cautious about spending and investment.
International trade is another area of potential exposure. IMF chief economist Silvana Tenreyro said trade in AI-related goods increased by 29% between 2023 and 2025, more than three times the 8.3% growth recorded in overall global trade during the same period. Without trade in AI-related goods, the growth rate for total trade would have been just 4.6%, according to the IMF’s calculations.
The figures illustrate how closely recent trade expansion has become linked to the technology boom. If companies reduce spending on AI equipment and infrastructure, manufacturers, component suppliers and economies dependent on technology exports could face weaker demand.
The fund has also raised concerns about cybersecurity risks associated with advanced AI systems. These concerns are emerging as financial regulators increase scrutiny of how banks use the technology. US banking regulators have been questioning financial institutions about their use of advanced AI models, while European regulators have pressed banks to strengthen their recovery plans against potential technology-related disruptions.
Despite these risks, the IMF does not expect even its severe AI-related downside scenario to push global economic growth into territory typically associated with a worldwide recession. Petya Koeva Brooks, the fund’s deputy research director, said in an interview that the projected decline in output under the worst-case scenario would not necessarily bring growth down to recessionary levels.
Nevertheless, the IMF’s broader message is that strong investment figures should not encourage policymakers or financial institutions to overlook the possibility of a sudden market correction.
Rising Government Debt and War-Driven Inflation Add to Economic Pressure
Alongside the risks from AI investment, the IMF has warned that high public debt and rising bond yields could place additional pressure on governments and slow economic growth. The problem could become more severe if a prolonged Middle East conflict pushes energy prices higher, contributing to inflation and increasing the cost of borrowing.
When governments pay more to service existing debt, less public money is available for infrastructure, social programs and other spending priorities. Higher borrowing costs can also make it more expensive for businesses to finance expansion, potentially weakening investment and employment.
Georgieva has urged advanced economies to address their fiscal vulnerabilities rather than assume that strong institutions and developed financial markets will shield them from a debt crisis. She criticized governments in systemically important economies that fail to take sufficient action to control borrowing, particularly when developing countries have already been forced to make difficult fiscal adjustments.
The burden is especially severe for developing economies, many of which face limited budget flexibility and high debt-servicing costs. Nigerian Finance Minister Taiwo Oyedele, who chairs the Group of 24 developing nations, described debt vulnerabilities as a major obstacle to inclusive economic growth.
Oyedele said estimates indicated that developing countries were paying $500 billion more for their debt than developed economies, even as they struggled with growing budget deficits. Such pressures can leave governments with fewer resources to respond to economic shocks, invest in public services or support vulnerable populations.
The IMF is encouraging governments to take politically difficult steps to bring their budgets under control. However, reducing public borrowing can be challenging when voters expect governments to maintain spending and when economic uncertainty increases pressure for additional support.
Britain has received particular attention in the fund’s latest assessment. The IMF identified the United Kingdom as the only major advanced economy with clear plans to reduce government borrowing over the coming years. It nevertheless urged British policymakers to maintain their commitment to fiscal discipline as the government prepares to announce its budget plans in the coming weeks.
Other major economies have been less willing to pursue comparable measures. Josh Lipsky, vice president of international economics at the Atlantic Council, said France, Germany and the United States all needed fiscal consolidation but were moving in the opposite direction. He warned that governments might not fully recognize the urgency of the problem until a crisis forces them to act.
The IMF’s warnings highlight the difficult choices facing policymakers as several risks converge. A correction in AI valuations could weaken investment and trade, while higher oil prices could fuel inflation and increase borrowing costs. At the same time, elevated public debt could restrict governments’ ability to respond effectively to an economic slowdown.
The fund’s outlook remains dependent on assumptions that the Middle East conflict eases and global shipping conditions improve. If those conditions are not met, the effects could extend well beyond energy markets, adding pressure to already stretched government finances and financial markets.
For policymakers, the challenge is to preserve the economic benefits of technological investment without becoming overly dependent on a single source of growth. Strengthening public finances, preparing financial institutions for emerging risks and reducing vulnerability to geopolitical shocks will be central to limiting the damage if the global economy faces another major setback.