The IMF's Kristalina Georgieva says the global economy has weathered the Iran war energy shock better than feared, but she flagged deteriorating fiscal conditions, rising bond yields and a stalled disinflation process. She warned the energy shock "is not over" and pressed governments to fix their deficits.
International Monetary Fund Managing Director Kristalina Georgieva told reporters on Tuesday that the world economy has weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared, thanks to drawdowns of oil and gas reserves, higher non-Gulf supply, lower energy demand, more renewable capacity and a return to coal power in some places. She was briefing ahead of next week's Group of 20 finance leaders meeting in Asheville, North Carolina.
A "tug of war" between energy shock and AI boom
Georgieva described a tug of war between the negative Gulf energy supply shock and growth tailwinds from the artificial intelligence investment boom, which she said is starting to spread beyond U.S. borders. AI investment in the United States is keeping corporate earnings and consumer spending strong, while other countries ramp up data-center construction and AI hardware supplies. Risks to the outlook are more balanced than in April but still tilted to the downside, she said, citing mounting fiscal pressures and the chance that central banks keep monetary policy tight to control inflation.
Oil prices and the fiscal warning
She warned against complacency even as Brent crude has hovered in the $80-$90 per barrel range since mid-June, well below its spring peak above $118. According to Reuters: "The energy shock is not over", she said, warning a renewed rise in oil prices could fuel inflation and force central banks to keep policy restrictive. She called on all countries to formulate and present credible plans to put their debt and deficits on a sustainable path, without naming individual countries.
The warning follows last week's spike in U.S. Treasury 30-year bond yields to 19-year highs, which prompted Treasury Secretary Scott Bessent to announce a surprise doubling of long bond buyback sizes to hold down borrowing costs. The IMF has long pressed Washington to reduce its fiscal deficits, arguing that would also help shrink U.S. trade and current account gaps.
Georgieva said central banks must stay laser-focused on price stability, and that countries need to address excess global imbalances driving trade tensions, without naming specific countries. The IMF is refining its model for assessing external balances and will deepen its analysis in a series of forthcoming papers.
Source: Investing.com
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