The global AI boom is fast becoming a driver of economies around the world. However, the boom risks global inequality by leaving some nations behind, IMF chief Kristalina Georgieva warned on Wednesday.
She also lamented a lack of “decisive action” in heavily indebted advanced nations. She called for “very tough policy choices” to restore the health of their public finances. Kristalina Georgieva is the Managing Director of the International Monetary Fund (IMF).
Georgieva spoke ahead of the IMF’s annual meetings in Singapore next week. She said AI investment-to-GDP will likely top the cash pumped into railroads, the electricity grid or the telecommunication network.
Growth in AI-related trade was seen most in the United States, China and India. Companies there splashed out on data centres and other infrastructure. Others benefited from the manufacture of chips and robotics.
“Love it, hate it, or fear it, AI is here, rapidly becoming a key driver of countries’ relative fortunes in the world economy,” Georgieva said.
“Yet as this drives forward today’s AI economies, it largely bypasses most others, increasing the risk of widening economic inequality across the globe,” she warned.
“Success requires everybody be taken along to harvest the transformative power of AI, which is why it will be so important to deliver AI access around the globe. And that, of course, calls for cooperation. In our interconnected world, countries cooperate not out of charity but out of self-interest.”
AI Tech Sector Booming Beyond Forcasts
The speech comes amid growing concern about the vast sums pumped into the sector. Investors are asking when they will see returns, after the boom fuelled a market rally to record levels over the past two years.
Tech firms continue to rise even after a summer rout. Chipmaker Nvidia hit a record high on Tuesday. Its market capitalisation reached almost $5.7 trillion.
“Should earnings fall short, however, hyperscaler leverage and large and growing global holdings of U.S. equities could turn a disappointment into a far-reaching shock,” Georgieva said.
Debt And Tough Choices Ahead
Georgieva also addressed rising debt levels among governments. Borrowing costs are being fuelled by rising inflation and interest rates. These are compounded by massive bond issuance by companies to fund their AI investments.
“Elevated yields are inflating the interest bill at a time of tight budget constraints and competing spending priorities, including defence,” she said.
“Higher policy rates then lift the short end, feeding directly into the cost of short-term debt. And yet we don’t see decisive action in high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans, supported in some cases by upfront fiscal measures.”
The spike in inflation has been largely driven by a surge in oil prices since the start of the Middle East war. Georgieva said the shock, though large, had been contained by access to stockpiles, energy efficiency and contingency planning, among others.
However, she pointed out that oil was still above $100, with diesel at record highs. Natural gas supplies from the Gulf remain severely impaired, affecting Asia and Europe particularly hard.
She warned that, even with a swift end to the Iran war, “the problem of high energy prices will likely persist for some time.”
She praised some central banks for moving to fight inflation by lifting interest rates. “Now may be a good time for a prudently hawkish bias in many countries’ monetary policy,” she added.
Emerging Markets And Low-Income Countries
Emerging markets, she said, faced higher borrowing rates and more volatile capital flows. Low-income countries could be forced to cut crucial development spending.
“My message to the world’s economic policymakers next week will be this: we cannot keep delaying necessary policy action — you have the tools, now have the wisdom to use them,” Georgieva said. “Some very tough political choices stare us in the face.”
She said policymakers needed to “explain to people why consolidation is needed, why it is in their interest. Take some pain today for growth tomorrow.”
Secondly, they had to “make plans to limit the cost to future growth to the extent possible, and to protect the most vulnerable in society”, and also “pursue complementary structural reforms.”
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