IMF managing director Kristalina Georgieva said the world is being pulled in two directions: a negative energy supply shock from the war in the Middle East 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.
Georgieva singled out growing government debt as another major worry, describing advanced economies led by the United States as the "worst offenders" on debt burdens, with debt-to-GDP ratios higher than emerging markets and low-income countries.
The warnings came as markets showed a mixed picture. On Wall Street, the S&P 500 rose nearly 0.6% to 7,818.93 and the Nasdaq closed at 27,599.886, both at new all-time highs. In Asia, 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% and South Korea's Kospi tumbled nearly 2%.
Oil prices moved back above $100 a barrel, with Brent crude up 0.66% at $101.19 and US crude 0.5% ahead at $89.86. Investors weighed 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. Commodities trader Vitol said around 12 million barrels per day of crude oil and 2 million barrels per day of refined products had left the Middle East on tankers in the past seven to 10 days, according to Reuters.
Government bond markets steadied after last week's selloff. French 10-year yields fell more than 11 basis points, and the spread between French and safer German bonds narrowed to 132 basis points from almost 160. 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 5 basis points to 4.796%, US Treasury yields rose 4.5 basis points to 5.31%, and UK gilt yields edged down to 5.37%.