IMF’s Georgieva warns fiscal strains now top global risk

International Monetary Fund Managing Director Kristalina Georgieva said on Tuesday that the global economy has weathered the Iran war energy shock better than feared, but warned that deteriorating fiscal conditions, rising bond yields, and stalled disinflation now pose the greatest risks to the outlook.reuters+1

A 'Tug of War' Between Energy Drag and AI Boom

Speaking ahead of next week's Group of 20 finance leaders meeting in Asheville, North Carolina, 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 was beginning to spread beyond U.S. borders.straitstimes+1

Global growth is "resisting powerful headwinds from high debt levels, stubborn inflation, and trade tensions," Georgieva said. "Thus far, it has weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared, thanks to a combination of factors."reuters

Those factors include drawdowns of oil and gas reserves, increased non-Gulf energy supplies, lower energy demand, expanded renewable energy capacity, and a return to coal power generation in some countries. AI investment in the United States continues to support corporate earnings and consumer spending, while other nations are ramping up data-center construction.ndtvprofit+1

The IMF in July cut its 2026 global growth forecast to 3.0% and will next update projections in mid-October at its annual meetings in Bangkok.reuters

Fiscal Pressures and the Energy Outlook

Georgieva cautioned policymakers against complacency, noting that Brent crude prices hovering between $80 and $90 per barrel since mid-June remain volatile. "The energy shock is not over," she said. "A renewed rise in oil prices could fuel inflation, forcing central banks to retain a restrictive policy stance with knock-on implications on debt service costs and on economic activity."firstpost+1

She urged all governments to "formulate and present credible plans to ensure their debt and deficits are on a sustainable path," and said central banks must stay "laser-focused" on price stability.reuters

Bond Market Strains Underscore the Warning

Georgieva's remarks followed 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 help contain borrowing costs. The 30-year yield remained elevated above 5.18% on Wednesday.tradingeconomics+3

The IMF has long called on Washington to reduce its widening fiscal deficits, which would also help shrink U.S. trade and current account imbalances. Georgieva also reiterated calls for countries to address "excess global imbalances" causing trade tensions, without naming specific nations — though she has previously urged China to shift its growth model away from exports and toward domestic consumption.reuters+1