The Engine of Growth
According to IMF Managing Director Kristalina Georgieva, the global economy is experiencing a 'positive demand shock' driven by a massive wave of investment in artificial intelligence. This boom is so significant that spending on AI infrastructure is on track
to rival historical investments in railroads or electricity grids. The IMF estimates that, if managed correctly, AI could add up to half a percentage point to annual global growth. This productivity surge is seen as a powerful force that could boost incomes and even help counterbalance the economic drag from aging populations in some advanced economies. The benefits are already being felt in countries with strong technology sectors like the US, China, and India, which are seeing record exports of chips and other AI-related hardware.
A 'Slow-Moving Tsunami' for Jobs
Despite the optimism, Georgieva has described AI's impact on the global labour market as a 'slow-moving tsunami'. The IMF's analysis is stark: almost 40% of jobs worldwide are exposed to AI, a figure that rises to 60% in advanced economies. Unlike past waves of automation that primarily affected routine manual tasks, AI has the ability to impact highly skilled jobs. For about half of those affected, AI might simply complement their work and boost productivity. For the other half, however, AI could perform key tasks, leading to lower wages, reduced hiring, and in the most extreme cases, the elimination of jobs altogether. This hollowing out of demand for human workers is particularly concerning for young people, as the routine, entry-level jobs that have traditionally been the first step on the career ladder are disappearing.
The Risk of Financial Shocks
Beyond the labour market, Georgieva warns that the AI investment frenzy itself creates systemic financial risks. Stock markets have been driven higher by strong corporate earnings from AI-related companies, but these valuations may be underpricing the specific risks involved. One major concern is what happens if the transformative productivity gains fail to materialise as quickly as hoped. A disappointment in earnings could trigger a sharp market correction. This risk is amplified by the structure of the AI industry, where circular financing arrangements—in which a small number of firms act as each other's customers and investors—could cause problems at one company to cascade through the ecosystem, leading to a far-reaching shock.
Widening Global Inequality
A key theme in the IMF's assessment is the risk of deepening inequality, both within and between countries. The economic benefits of the AI boom are currently concentrated in a small number of nations that are part of the AI hardware supply chain. Most other countries are being largely bypassed, increasing the risk of a wider global economic divide. Within countries, AI is likely to worsen income inequality. High-income workers whose skills are complemented by AI may see their earnings rise, while those whose jobs are replaced face downward pressure on wages. This trend could also erode government tax revenues, as economic gains shift from labour income—the traditional backbone of the tax base—toward capital owners.
Navigating the Path Forward
The IMF stresses that these negative outcomes are not inevitable, but require proactive policy choices. Georgieva has called for a 'careful balance of policies' to harness AI's potential for the benefit of all. Key recommendations include establishing comprehensive social safety nets and offering robust retraining programmes for vulnerable workers to make the transition more inclusive. She also advocates for smart regulation and ethical frameworks, urging major AI-producing nations like the US, China, and India to cooperate. For developing economies, the focus must be on expanding access to digital infrastructure and skills to avoid falling further behind. Central banks have been advised to remain cautious, as the AI investment boom adds to inflationary pressures in a global economy already dealing with high debt and energy shocks.
