IMF chief urges nations to address fiscal issues: central banks must focus on fighting inflation, AI boom supports global economy

According to Zhitong Finance APP, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), warned on Tuesday that as the global economy faces multiple challenges such as fiscal pressures, persistently high inflation, and geopolitical conflicts, governments must develop credible fiscal consolidation plans, while central banks worldwide need to maintain inflation control as a core policy priority. She also noted that the world economy is currently undergoing a unique “tug of war,” as the negative supply shock caused by the Middle East conflict is being counterbalanced by the positive demand shock driven by artificial intelligence investment.

Georgieva told reporters at the IMF headquarters in Washington that all countries need to address their own fiscal issues and formulate and announce credible plans to ensure that government debt and fiscal deficits are on a sustainable path.

Regarding monetary policy, she emphasized that central banks must remain “highly focused” on the core responsibility of price stability. With inflation not yet fully under control, central banks cannot afford to let their guard down prematurely.

Georgieva stated that despite continued global economic headwinds from stubborn inflation and trade tensions, overall performance remains resilient so far, in large part due to substantial increases in artificial intelligence sector investments.

The construction of AI infrastructure is creating massive capital expenditure requirements, providing new momentum for global economic growth. However, Georgieva pointed out that the outlook for the world economy remains highly uncertain; the recent rise in global bond yields and limited progress in bringing down inflation both reflect the considerable pressures that markets still face.

The IMF largely maintained its forecast for global economic growth in July, projecting around 3% growth in 2026. However, the organization raised its forecast for consumer price increases at that time due to higher energy and food prices. The IMF will release its latest global economic assessment at its annual meeting in Bangkok this October.

For the two main forces shaping the current global economy, Georgieva offered a vivid description. She said the energy shock triggered by the Iran war is not yet over. “In short, we are in a tug of war: on one side, negative supply shocks from the Middle East; on the other, positive demand shocks from AI.”

The conflict in the Middle East is pushing up energy costs and disrupting supply chains, resulting in negative supply shocks for the global economy. At the same time, massive investments by technology firms in AI chips, data centers, electricity, and related infrastructure continue to create new demand and support economic growth.

This combination has also made the policy environment for central banks worldwide more complex. On one hand, energy supply shocks could continue to fuel inflation; on the other, the AI investment boom may sustain strong economic demand, making it even more difficult to bring inflation down.

Georgieva also listed a range of potential risks facing the global economy in the coming months. As the Northern Hemisphere enters winter, declining oil and natural gas reserves may add supply pressures to energy markets. At the same time, strong El Niño weather conditions could impact global agricultural production, further exacerbating food security concerns.

Additionally, the IMF is closely monitoring the potential impact of rapid AI development on financial stability. Georgieva said these risks mean that governments and central banks have “no room for complacency.” While global economic performance so far has been “not too bad,” that does not mean the outlook has become less challenging.

This week, Georgieva will also attend the Federal Reserve’s annual economic policy symposium in Jackson Hole, Wyoming, for the first time. During the event, Federal Reserve Chair Jerome Powell will deliver his first major speech since taking office, and markets will be watching closely for clues on the future path of interest rates.

With inflation still above target, long-term bond yields at high levels, and global fiscal pressures on the rise, how major central banks balance economic growth and price stability in the next stage will be a key focus of this meeting.

Meanwhile, she disclosed that the IMF is adjusting how it monitors and assesses member economies, aiming to use more scenario analyses and contingency planning to help countries respond more flexibly to potential shocks amid rising global uncertainty.

Overall, Georgieva believes the AI investment boom is helping the global economy offset some energy and geopolitical shocks, but it is not enough to eliminate fiscal, inflation, and financial market risks. Governments need to improve debt and deficit situations, and central banks worldwide should continue to prioritize restoring price stability.