IMF warns global economy near resilience limits amid low oil stocks and debt

The International Monetary Fund (IMF) has warned that the global economy "could soon test the limits of resilience" as emergency oil stocks run low and government budgets become overstretched. In its latest World Economic Outlook, released during annual meetings in Bangkok, the fund noted that while global growth has withstood the Middle East conflict better than feared, the capacity to absorb future shocks is diminishing.

Growth Forecasts and Energy Risks

The IMF slightly upgraded its forecast for global economic growth in 2026 to 3.1%, up from 3% in its July update. The forecast for 2027 remains unchanged at 3.4%. However, the fund cautioned that risks are "skewed to the downside," particularly due to the potential for further escalation in the Middle East.

The report highlighted that the rerouting of oil supplies away from the strait of Hormuz and the release of strategic energy stocks helped contain oil price impacts from the US-Iran war. Yet, these buffers are now depleted. "Without shoring up supply capacity and replenishing policy buffers, the global economy could soon test the limits of resilience," the IMF stated. "Inventories in energy markets are dwindling and additional geopolitical shocks could still transmit rapidly through prices and supply disruptions."

The US strategic petroleum reserve was recently reported to have fallen to its lowest level since 1982. Additionally, a recent agreement between Donald Trump and Vladimir Putin to temporarily lift sanctions on US imports of Russian diesel was described by analysts as having little "meaningful" effect on prices.

Sovereign Debt and AI Borrowing

In a separate Global Financial Stability Report, the IMF warned that sovereign bond yields could rise in a "disorderly" fashion. The fund pointed to record debt levels, which are on track to exceed 100% of GDP, and the increasing competition for investor capital from AI-related borrowing.

The report noted that hyperscalers’ share of global investment-grade bond issuance has risen to 10% from less than 1% since 2024. "AI-linked issuance – much of it longer-dated – has grown large enough to compete with government bonds for investor capital, even if it does not appear to be the dominant driver of yields," said Marc Seidner, CIO of non-traditional strategies at Pacific Investment Management.

The IMF also highlighted vulnerabilities in the US Treasury market, noting that hedge funds’ share of US Treasuries rose to about 9% in 2025 from about 4% in 2022. This leverage leaves the market "susceptible to a disorderly unwind," according to the report.

Regional Outlooks and Inflation

The IMF revised its forecast for UK GDP growth in 2026 to 1.3%, an increase of 0.3 percentage points from July. However, it cut the UK growth forecast for 2027 to 1.2% from 1.3%, citing the impact of higher energy prices and long-term interest rates on consumption and investment.

US growth is projected to remain unchanged at 2.3% for both 2026 and 2027. Global inflation is expected to be 4.7% this year, unchanged from July forecasts, but is projected to decline to 4.1% in 2027, up from 4% in the previous update.

IMF managing director Kristalina Georgieva urged governments to act on debt levels. "We cannot keep delaying necessary policy action – you have the tools, now have the wisdom to use them," she said. The fund advised central banks to remain agile, warning against overreacting to short-term inflation jumps while staying ready to respond if inflation becomes entrenched.

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Sources

• theguardian.com: IMF warns global economy ‘could soon test the limits of resilience’ | International Monetary Fund (IMF) | The Guardian
• cnbc.com: IMF warns bond yields could see a 'disorderly' spike as debt, inflation risks worsen
• thestar.com: IMF raises its forecast for world growth this year but says economies will slow in 2027

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.