The International Monetary Fund's (IMF) managing director said on Tuesday that the global economy is faring better than expected as energy supply disruptions in the Strait of Hormuz drive uncertainty, although she warned of rising fiscal pressures.
Energy supply disruptions from the Middle East put a new strain on a global economy facing stubborn inflation, rising debt levels and lingering trade tensions. Traffic disruption in the waterway, through which roughly 20 per cent of the world's energy supplies transited before the Iran war began in February, have gyrated oil prices, leading to mounting concerns over price pressures.
IMF chief Kristalina Georgieva said a number of factors are helping the global economy to “resist” these disruptions, including a drawdown of oil and gas reserves, increases in non-Gulf supply, demand reductions and “some reversal back to coal”.
Most recent projections from the fund expect the global economy to expand at a 3 per cent clip this year, slightly lower than its 3.1 per cent forecast in April. At the same time, it further downgraded its 2026 forecast for the Middle East to 0.7 per cent growth, 1.2 percentage points lower than in April.
“Thus far, it has weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared,” Ms Georgieva told reporters at the fund's headquarters before the G20 conference in North Carolina next week.
Also partly accounting for this better-than-expected growth performance is the AI boom. The IMF chief said the benefits from this boom are now reaching beyond the US, while the net impact between the technological boom and the energy supply crisis is having an asymmetric impact across different countries. Global growth is expected to recover to 3.4 per cent next year, the IMF reported in July.
“What started out as a US phenomenon with AI is now becoming a growth engine for the global economy,” she said. “We have a tug of war between the negative supply shock from the Middle East and the positive demand shock from AI.” Ms Georgieva said rising bond yields are evidence of rising fiscal pressures, placing new anxiety on markets and policymakers.
The US Treasury Department last week announced it would at least double the size of its government debt repurchases after long-term yields reached their highest levels in 20 years. Separate US government data last week showed that US national debt surpassed $40 trillion – double what it was in 2017.
“All countries need to tackle their fiscal problems and formulate and present credible plans to ensure their debt and deficits are on a sustainable path,” she said.
