IMF Warns AI Slowdown Could Hit Growth

IMF Managing Director Kristalina Georgieva stated that any slowdown in AI-driven growth would be a factor for central banks to consider in their fight against inflation. Georgieva made the comments on November 6, following a steep rout in technology stocks on November 5 due to fears of increased regulatory scrutiny of AI.

The rout in technology stocks was triggered by concerns that the Democrats' planned legislation targeting AI systems and data-centre development could slow the AI investment boom. The IMF had previously warned in October that a steep drop in AI investment could lead to a sharp fall in asset prices, ultimately cutting global GDP by 1.1% by 2028.

The AI investment boom has been lifting growth in some countries, helping to offset a negative oil-supply shock triggered by the war in the Middle East. However, it is also adding to inflationary pressures and financial stability concerns. Georgieva noted that concerns about dependence on the AI investment boom and high valuations were impacting markets around the world.

## Why it matters The IMF's warning highlights the potential risks of a slowdown in AI-driven growth. A steep drop in AI investment could not only cut global GDP but also lead to a 1.8% drop in US output by 2028. This could have significant implications for central banks as they navigate the challenges of fighting inflation while maintaining financial stability.

The planned legislation targeting AI systems and data-centre development, set to be unveiled by the Democrats in January, could further exacerbate the situation. As central banks consider their next moves, they will need to take into account the potential impact of a slowdown in AI-driven growth on the global economy.