IMF Chief Urges Hawkish Policy Bias as Global Debt Hits Post-WWII High

IMF Managing Director Kristalina Georgieva has urged a prudently hawkish bias in monetary policy for many countries. She made the call amid global public debt approaching levels last seen after World War II.

Georgieva said "now may be a good time for a prudently hawkish bias in many countries' monetary policy." Worldwide public debt could top 100% of GDP before 2030, with developed economies described as the worst offenders. She argued governments cannot rely on rapid economic growth alone to reduce this burden and must instead make very tough political choices. Georgieva called for an urgent and comprehensive set of policy responses.

Bond yields surge to multi-decade highs across major economies

Borrowing costs for governments have jumped to multi-decade highs. Bond yields, which are effectively the interest rate on debt, have risen sharply in recent weeks. Markets are adjusting to the prospect of higher inflation, partly due to the war in the Middle East. This has raised the interest bill during tight budget constraints.

Key 10-year government bond yields are at their highest levels in years:

AI presents dual shock to global economy amid uneven impacts

The global economy faces opposing forces. A negative energy supply shock from the Iran war coincides with a positive demand shock from artificial intelligence. Even if the Gulf war ends soon, high energy prices will likely persist. Oil prices remain at about $100 a barrel, above the $89 per barrel the IMF assumed in its July forecasts.

AI could lift global growth by as much as half a percentage point a year if managed effectively. Over a decade, this AI-driven growth could add an economy the size of ASEAN to the world. Georgieva described AI as rapidly becoming a key driver of countries' relative fortunes. Yet she also warned of substantial perils. These include large-scale labour market fallout, serious cyber risks, and frontier models that could escape human control. A letdown for AI investors could become a far-reaching shock. Georgieva cautioned that the AI building boom is inflationary.

Central bank tightening deemed appropriate despite BoE hold

Kristalina Georgieva described recent rate hikes by the US Federal Reserve, European Central Bank, and Bank of Japan as highly appropriate. These banks tightened policy due to rising inflation. In contrast, the Bank of England has left its interest rate on hold at 3.75%. Georgieva suggested central banks might want to err on the side of caution and should be prepared to raise rates to counter resurgent inflation.

IMF to update forecasts as AI reshapes national competitiveness

The IMF is due to publish updated global growth forecasts during next week's annual meetings in Bangkok. Previous July forecasts projected global growth at 3% in 2026 and 3.4% in 2027. Georgieva, who spoke in Singapore on Wednesday, stressed the importance of tackling AI's risks. She urged policymakers to help manage its perils. Competing spending priorities, including defence, add to the fiscal challenge. Georgieva's final warning was stark. She said, "we cannot keep delaying necessary policy action, you have the tools, now have the wisdom to use them." The IMF is due to publish updated global growth forecasts during next week's meetings in Bangkok.