"AI Investment Drives the Global Economy," Says IMF; "Rising Oil Prices Are a Wild Card"

[Financial News]  

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said on the 25th (local time) that the boom in artificial intelligence (AI) investment is spreading beyond the United States and driving economic growth around the world. She added that countries left out of the AI boom could fall even further behind.
Georgieva also expressed optimism that the global economy will continue to post solid growth as countries work through the shock from the Iran war.
According to the Financial Times, Georgieva made the remarks at a press conference held that day at IMF Headquarters in Washington, D.C.
She said, "AI, which began as a phenomenon in the United States, is now becoming an engine of global economic growth." She added, "Other countries are also accelerating construction of data centers and other infrastructure." She also noted that the world economy is "weathering the energy shock from the Strait of Hormuz blockade better than feared."
Before the war broke out on Feb. 28, the Strait of Hormuz handled about 20% of global oil and natural gas shipments, with roughly 130 merchant vessels passing through each day. It is now effectively blocked. In early July, the IMF projected that the global economy would grow just 3% this year, below last year's 3.5%, citing the impact of the Iran war and other factors. The new forecast will be released in October. Georgieva's upbeat outlook suggests the IMF may raise its growth projection in the updated outlook.
She said slowing energy demand, releases from the strategic petroleum reserve (SPR), increased supply outside the Gulf region, expanded renewable energy capacity, and higher coal use are acting as buffers against the oil supply shock caused by the war. Although the positive effects of the AI boom and the negative impact of the Iran war are still in a tug of war, she said the clouds hanging over the global economy have thinned considerably since the start of the year.
According to Georgieva, the AI investment boom remains concentrated in the United States, lifting corporate profits and consumer demand. But other countries are also "plugging into the supply chain" and sharing in the gains by exporting AI hardware.
She cautioned, however, that the energy shock triggered by the start of the Iran war is not over yet. She warned that "oil and gas stockpiles are declining ahead of a very long winter in the Northern Hemisphere."
If oil prices rise again, inflation could accelerate further and central banks may have no choice but to raise interest rates, she said. Georgieva warned that this would push up government bond yields and could also weigh on economic growth.

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