IMF update

 

Day two of the annual meetings focused on the global economic outlook, financial stability, and resilience in a fragmented world.  FULL SCHEDULE WORLD ECONOMIC OUTLOOK  IMF Says Global Resilience Is Reaching Its Limits The global economy has weathered successive shocks, but some of the buffers that helped cushion the blows are wearing thin, the IMF warned in its latest World Economic Outlook. The growth forecast remains broadly unchanged from April, despite more persistent energy-market disruptions, with global activity projected to grow 3.1 percent this year and 3.4 percent in 2027.    An AI-driven investment boom has supported growth and trade, while rerouted energy supplies, higher production, inventory drawdowns, and greater energy efficiency have softened the impact of higher energy prices. At the same time, high public debt and rising borrowing costs are eroding governments’ fiscal room to absorb the next shock.    “The global economy has been resilient, but that resilience is reaching its limits,” IMF chief economist Silvana Tenreyro told a press briefing on Tuesday. “We need to move from just coping to rebuilding.”     The IMF called on countries to put public debt on a sustainable path and strengthen supply-side resilience, including through greater energy security and more resilient critical supply chains. With headline inflation projected to rise to 4.7 percent this year, Tenreyro added: “More than ever, central bank independence is vital in achieving inflation targets.” Read the report GLOBAL FINANCIAL STABILITY  Strong Risk Appetite Masks Growing Financial Fault Lines Risk appetite among investors remains strong despite pressure in government bond markets, reflecting robust corporate earnings, positive growth surprises, and optimism about AI. Yet the IMF’s latest Global Financial Stability Report warns that a correction in AI valuations, a sharper rise in sovereign yields, or cyberattacks could expose underlying vulnerabilities   One concern is the increasingly circular financing of the AI boom. An IMF analysis of 14 transactions found about $300 billion in equity investment and $650 billion in debt tied to $1.4 trillion in future revenue commitments.    Athanasios Vamvakidis, deputy director of the IMF’s Monetary and Capital Markets Department, said this has generated a positive feedback loop. But he warned that if funding slows or expected revenues fail to materialize, “this channel will turn into a negative feedback loop.”    Higher sovereign yields pose another risk. At the same time, Vamvakidis pointed to a potential benefit from this repricing: “The silver lining here is that market discipline is back.” Markets are pricing inflation and fiscal risks as well as policy uncertainty, he said, which could encourage countries “to put their house in order.” Read the report HUMAN OVERSIGHT AND ACCOUNTABILITY Safeguards Needed as AI Agents Enter Markets  As AI agents assume greater roles in financial markets, industry leaders highlighted the need for controls, auditability and accountability, during a panel discussion on AI and tokenization.     “I am in the camp of giving agents substantial autonomy, but within the boundary of an explicit and enforceable mandate,” said Naveen Mallela, global head of payments at Standard Chartered, emphasizing the need for “kill switches” and other forms of control.    Looking ahead, panelists expected a hybrid of traditional financial infrastructure and digital networks across multiple jurisdictions to coexist, rather than converge on a single blockchain. This would strengthen the case for interoperability and common standards to connect liquidity across platforms.     “What we want to avoid is creating more digital islands, which is going to be very costly for the entire ecosystem,” said Kevin Wong, chief executive for Asia Pacific at Swift.   Watch the event KOREA'S MONETARY POLICY CHALLENGES  Raising Interest Rates to Contain Inflation  Hyun-Song Shin, governor of the Bank of Korea, said the AI boom and the war in the Middle East are shaping the country’s economy in opposite ways, with strong AI-related demand helping offset the drag from higher energy prices.    While the central bank expects growth to remain “very robust” next year, inflation is proving more persistent. “Inflation actually is made worse by the combination” of the AI boom and energy shocks, Shin said during a Governor Talk with Krishna Srinivasan, director of the IMF’s Asia and Pacific Department.    With inflation expected to remain above target for some time, the Bank of Korea has raised interest rates twice. “We will keep a restrictive stance of monetary policy until we're confident that inflation will converge to our target, and in a timely way,” Shin said.    The tighter policy stance has also supported the won, which has strengthened “quite substantially” in recent months. Shin, who became governor in April after leading the Monetary and Economic Department at the Bank for International Settlements, said there is “probably more scope for appreciation.”  Watch the event FRAGMENTATION  Building Resilience in a Turbulent World  The global economy has proved more resilient than many expected in the face of conflict and trade tensions, but that resilience should not be taken for granted, IMF Managing Director Kristalina Georgieva said in a seminar.    Maintaining stability remains the foundation for everything else, she noted. The “first line of defense” is macroeconomic and financial stability. “When your fiscal position wobbles, when you allow inflation to run out of control, then whatever you do in other ways on security may not help you.”    That resilience also depends on countries’ ability to adapt. Ekniti Nitithanprapas, Thailand’s deputy prime minister and finance minister, said trust and cooperation remain essential. Trade may encounter barriers, but it often finds new routes, he noted, citing Thailand’s efforts to reduce its reliance on Middle Eastern oil by increasing imports from West Africa and Latin America.    Riikka Purra, Finland’s deputy prime minister and finance minister, said small open economies can build on their strengths. Shaped by its proximity to Russia, Finland is “resilient by definition,” she said.  Watch the event SOVEREIGN RISK  Digital Tools Aid Reform Amid Challenging Backdrop Technology is helping countries pursue fiscal reforms in a more challenging global environment, the finance ministers of Malaysia and Pakistan said during a seminar on mitigating sovereign risks.   “It starts with the fiscal discussion and domestic revenue mobilization,” said Muhammad Aurangzeb, minister for finance and revenue in Pakistan, where inflation has fallen from a peak of 38 percent in 2023 to almost 10 percent in 2026.    “Over the last two years, our tax revenues have gone up by 40 percent,” the minister told the panel moderated by Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department. “It is about deepening, about broadening, using people, process and technology transformation in terms of our tax authority.”    In Malaysia, technology has helped the government move from blanket subsidies to more targeted support, as part of broader efforts to create more fiscal space.   “In doing the reforms, be anchored and be clear that the groups that you need to protect are well looked after by targeted reforms,” said Amir Hamzah Azizan, Malaysia's finance minister II. “And part of the magic is to use technology: digitalization, better systems and better processes allow you to target better.”   Watch the event AFRICA  Turning Promise into Growth  Africa can become “the world's next growth engine” if countries strengthen governance, deepen regional trade, and attract private investment, IMF Deputy Managing Director Bo Li said during a panel on Africa’s future.    Nigeria’s finance minister, Taiwo Oyedele, said successful reforms require public support because “trust is not something you can legislate; you have to earn it.” Ahmed Rustom, Egypt’s minister of planning and economic development, stressed the need to sustain reforms and turn stability into long-term growth.    Speakers also called for faster progress on the African Continental Free Trade Area. “The difference between that great potential and a lived reality is implementation,” said Daniel Mminele, chairman of Nedbank Group. Watch the event BEHIND THE SCENES MEDIA PARTNERS Give us your feedback! What do you think of the Annual Meetings and our newsletter coverage so far? Share your thoughts and feedback directly by clicking here. Your comments will very much inform our agenda and coverage moving forward. Sincerely, IMF 2026 Annual Meetings Team   First-time reader? Sign up here Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431