IMF chief says any slowdown in AI-driven growth would be factor for central banks - The Straits Times

IMF managing director Kristalina Georgieva said concerns about dependence on the AI investment boom and high valuations were impacting markets around the world.

WASHINGTON - Central bankers around the world would need to consider any slowdown in artificial intelligence (AI)-driven growth as they assess steps in their fight against inflation, International Monetary Fund (IMF) managing director Kristalina Georgieva said on Nov 6.

Georgieva said concerns about dependence on the AI investment boom and high valuations were impacting markets around the world.

“Things are going up and down, and this is likely to continue,” she told an audience at IMF headquarters in Washington, adding that the volatility would complicate the job of central banks at a time when risks to price stability had been growing.

A steep rout in technology stocks on Nov 5 rippled through markets on fears that the Democrats’ victory in the United States midterm elections would increase regulatory scrutiny of AI and slow the data centre build-out, sending investors to the safety of bonds.

The political jitters are hitting an AI trade already on shaky footing due to worry about return on massive spending on AI-related infrastructure, with the meltdown spurring margin calls and spooking retail investors and hedge funds alike.

Georgieva said the AI investment boom was lifting growth in some countries, helping to offset a negative oil-supply shock triggered by the war in the Middle East, but it was also adding to inflationary pressures and financial stability concerns.

The IMF in October flagged significant growth and financial stability risks from a potential ending of the AI investment boom, among other factors, including a prolonged Middle East war.

At the time, it warned 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, including a 1.8% drop in US output.

Georgieva did not repeat the downside forecast on Nov 6, but acknowledged the recent market volatility.

“Should there be a slowdown in the AI-driven growth impulse, it would need to be factored in as central banks assess the necessary steps in the fight against stubborn inflation,” she said.

Democrats are planning to unleash a flood of new legislation targeting AI systems and data-centre development when they take control of the US Congress in January, Reuters reported on Nov 6, citing congressional aides and advocates.

That would mark ​a sharp shift from the Republican-led Congress, where lawmakers largely focused on promoting AI development and declined to pass legislation restricting the ‌technology. REUTERS