Introduction: IMF chief warns energy shock, public debt and AI investment boom threaten global growth
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The global economy is under threat from the energy price shock, record public debt and the AI investment boom, according to the International Monetary Fund’s managing director Kristalina Georgieva.
In a speech ahead of the IMF and World Bank annual meetings in Bangkok next week, she said the world is being pulled in two directions – a negative energy supply shock from the Middle East war and a positive demand shock from artificial intelligence that is also driving inflation higher.
The combined impact of these two forces is highly uneven across the world,
she said, noting that the AI boom is bypassing many countries.
Growing government debt is another major worry. Georgieva singled out advanced economies, led by the United States, as the “worst offenders” on debt burdens, with debt to GDP ratios higher than in emerging markets and low-income countries.
Asian shares are down, while on Wall Street, the S&P 500 and the Nasdaq both finished at new all-time highs. The S&P 500 rose nearly 0.6% to 7,818.93 while the Nasdaq closed at 27,599.886.
MSCI’s broadest index of Asia-Pacific shares excluding Japan fell 0.3%. Japan’s Nikkei lost 0.6%, Hong Kong’s Hang Seng fell 0.5%, the Singapore market was down 1.3% and South Korea’s Kospi tumbled nearly 2%.
Oil prices have risen back above $100 a barrel again. Brent crude is up 0.66% at $101.19 a barrel, while US crude is 0.5% ahead at $89.86 a barrel.
Investors are weighing up supply constraints from a storm heading for North American oil-producing regions and Houthi attacks on Saudi Arabia, against higher supplies of oil from the Middle East
Around 12m barrels per day (bpd) of crude oil and 2m bpd of refined oil products have left the Middle East on tankers in the last seven to 10 days, according to commodities trading giant Vitol, Reuters reported.
After last week’s selloff in government bond markets, bonds rallied on Tuesday, pushing their yields (or interest rates) lower. Ten-year French yields fell more than 11 basis points and the spread between French and safer German bonds, which hit almost 160 basis points last week, narrowed to 132bps. The euro recovered from its declines over the past week and stabilised just above $1.1250.
ANZ economists said:
A sense of calm returned to European bond markets with French, Italian and Greek bonds outperforming amid a broad rally.
This morning, French 10-year yields rose nearly 5bps to 4.796%, while US Treasury yields rose 4.5bps, to 5.31%. UK gilt yields meanwhile are down a smidgen to 5.37%.
The Agenda
11.30am BST: UK Treasury gilt 2028 auction
7pm BST: US Federal Reserve minutes of last policy meeting