The global economy is facing a dangerous combination of geopolitical conflict, mounting government debt and growing uncertainty over the artificial intelligence boom, prompting the International Monetary Fund (IMF) to warn that financial markets may be more vulnerable than they appear.
In its latest economic and financial assessments released during the IMF and World Bank annual meetings in Bangkok, the fund warned that a prolonged Middle East conflict, a sharp correction in AI-related investments and rising government borrowing costs could undermine global growth and trigger wider financial instability.
The IMF projected global economic growth of 3.1% in 2026, slightly above its previous forecast of 3% in July. However, the improved outlook depends partly on continued investment in AI infrastructure and an eventual improvement in energy supplies and shipping conditions.
A prolonged conflict that keeps oil prices above $130 per barrel through the first quarter of 2027 could reduce global growth next year by half a percentage point, the fund warned. Higher energy prices could fuel inflation, raise transportation and production costs, and place additional pressure on households and businesses already struggling with elevated living expenses.
The growing dependence on AI investment presents another significant risk. The technology boom has supported corporate earnings and economic activity, but the IMF cautioned that expectations surrounding future profits may prove overly optimistic.
A sharp decline in AI investment could trigger falling asset prices and broader financial market turbulence. In one adverse scenario, the IMF estimated that a steep AI investment downturn could reduce global economic output by 1.1% by 2028, with the US economy facing a potential decline of 1.8%.
Meanwhile, rising public debt is leaving governments with less room to respond to another economic shock. The IMF warned on Wednesday that global public debt was approaching 100% of gross domestic product, its highest level since the Second World War, while higher bond yields were increasing borrowing costs.
Developing economies could face particularly difficult choices as debt repayments compete with spending on infrastructure, healthcare and social support.
Despite these mounting pressures, the IMF has not predicted an inevitable global recession. Instead, it has urged governments to strengthen public finances, manage debt responsibly and prepare for financial market disruptions.
The warning is clear: the global economy remains resilient, but its ability to absorb another major shock cannot be taken for granted.
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