IMF Warns of Growing Global Economic Risks

The global economy is still growing.

But the International Monetary Fund is warning that the margin for error is shrinking fast.

In its latest World Economic Outlook, released during the IMF and World Bank meetings in Bangkok, the Fund expects global growth of 3.1% in 2026 and 3.4% in 2027. That is slightly better than previously expected, largely because of the extraordinary investment boom surrounding artificial intelligence.

Beneath those headline numbers, however, the risks are becoming increasingly difficult to ignore.

The IMF is warning about a dangerous combination of war, high public debt, rising bond yields, persistent inflation and growing dependence on the AI investment boom to keep major economies expanding.

The result is a global economy that looks resilient on the surface but increasingly fragile underneath.

The first major risk is the Middle East.

The war involving Iran has pushed energy prices sharply higher, disrupted shipping and created renewed inflationary pressure across the world.

The IMF warns that if the conflict persists or escalates further, oil prices could climb toward $130 a barrel, weakening global growth while simultaneously pushing inflation higher.

That is one of the worst combinations policymakers can face.

Normally, weak growth gives central banks room to cut interest rates.

But if weak growth is accompanied by higher inflation, those cuts become much harder.

Central banks are then forced to choose between supporting the economy and keeping prices under control.

The second risk is debt.

Global public debt is approaching levels not seen since the aftermath of the Second World War.

The IMF says average public debt is moving toward 100% of global GDP, while governments are simultaneously facing much higher borrowing costs.

That means governments are paying more simply to refinance the debt they already accumulated.

The United States provides one of the clearest examples.

The IMF expects U.S. federal interest payments to reach around 5.3% of GDP by 2031, a remarkable amount of national income spent servicing previous borrowing rather than funding infrastructure, defense, healthcare or other priorities.

Poorer countries face an even harsher version of the same problem.

In many low-income economies, interest payments are already consuming more than 15% of government tax revenue.

That leaves governments with less money to deal with the next crisis.

And that is precisely what worries the IMF.

For years, states responded to recessions, pandemics, wars and energy shocks by borrowing more.

But each emergency has left governments starting the next one with higher debt and less fiscal room.

Eventually, that strategy becomes harder to sustain.

Then there is artificial intelligence.

Ironically, AI is both one of the strongest parts of the global economy and one of its biggest emerging risks.

The IMF says enormous investment in data centers, semiconductors, electricity and computing infrastructure is currently helping keep global growth above 3%.

AI-related trade has also become a major driver of global commerce.

The IMF estimates that global trade grew 8.3% between 2023 and 2025, but without the AI sector that increase would have been only 4.6%.

The world is therefore becoming increasingly dependent on the AI boom continuing.

That creates a new vulnerability.

If companies eventually conclude that the trillions being spent on AI infrastructure will not generate the expected profits, investment could slow sharply.

Technology stocks could fall.

Corporate borrowing could tighten.

And one of the main engines currently supporting global growth could suddenly weaken.

The IMF estimates that a significant AI investment correction could reduce global GDP by around 1.1% by 2028, with an even larger impact on the United States because of its greater exposure to the technology boom.

Financial markets are already becoming more sensitive to that risk.

The IMF’s Global Financial Stability Report warns that rising government bond yields, high technology valuations and growing corporate borrowing for AI infrastructure could combine into a period of much greater market volatility.

Around 22% of global banking assets are now held by banks with relatively weak capital cushions, according to the IMF, up from 18% last year.

The banking system remains broadly resilient.

But the direction is not reassuring.

There is also a growing divide between countries benefiting from the AI boom and those being left behind.

The IMF says just 32 countries now account for roughly 95% of global economic growth.

Countries producing semiconductors, attracting data-center investment or supplying AI infrastructure are doing comparatively well.

Many poorer countries, energy importers and economies outside the technology supply chain are not.

That divergence creates another problem.

The world economy may continue growing while large parts of it feel like they are stagnating or going backward.

That can fuel political instability, protectionism and pressure for governments to intervene more aggressively in trade.

The IMF is already warning about renewed trade tensions as another major downside risk.

The broader picture is therefore becoming unusually complicated.

War is creating a negative supply shock.

AI is creating a positive investment shock.

Governments are carrying historically high debt.

Central banks are still dealing with inflation.

Bond yields are rising.

Technology investment is booming.

And geopolitical tensions are making global trade less predictable.

Any one of those problems would be manageable.

The danger comes from several of them hitting at the same time.

That is why IMF Managing Director Kristalina Georgieva has warned that the global economy’s ability to absorb shocks is narrowing.

The world avoided recession through the pandemic aftermath, the Ukraine war, inflation and the latest Middle East conflict.

But every shock has consumed another part of the buffer.

Governments borrowed more.

Central banks used interest rates.

Strategic reserves were released.

Supply chains were rerouted.

Companies adapted.

The concern now is what happens when the next crisis arrives.

The IMF is not predicting a global recession.

It is warning that the world is becoming less capable of absorbing one more major shock without serious consequences.

That distinction matters.

The global economy is not collapsing.

But the foundations supporting it are becoming increasingly strained.

Debt is higher.

Energy is more expensive.

Interest rates are harder to cut.

And growth is becoming unusually dependent on a technology investment boom whose long-term returns are still uncertain.

For now, the system is holding.

The IMF’s warning is that governments should not assume it always will.