IMF flags four major threats to the world economy, here’s what they are

Although growth projections remain around 3.2% for 2024 and 3.1% for 2025, IMF Chief Economist Pierre-Olivier Gourinchas stressed that this relative stability conceals dangers that require urgent attention from policymakers, Viory reports.

“Trade tensions, financial market vulnerabilities, and weak fiscal positions are converging in ways that could quickly reverse hard-won gains,” he said while speaking at the Annual IMF Meetings.

Here are the four key threats outlined by the IMF:

1. Trade tensions and supply chain disruptions

Despite some optimism earlier this year, global trade remains at risk from new tariff measures and geopolitical rifts. The IMF noted that while recent U.S. tariffs have had a limited immediate impact due to exemptions, any escalation could knock 0.3 percentage points off global output.

Countries that rely heavily on exports or imported inputs could face inflationary pressures and a slower recovery if protectionism intensifies.

"Flaring up trade tensions with the potential for supply chain disruptions could quickly lower global output by as much as 0.3 percentage points," he said.

2. Financial market risks, the AI boom and a potential tech bubble

The IMF drew parallels with the late 1990s dot-com bubble, cautioning that today’s AI-driven surge in tech investments could start financial instability. Surging stock valuations, rapid capital inflows, and speculative investments risk a sharp market correction.

A sudden fall in tech markets, Gourinchas warned, could hurt household wealth, corporate investment, and global financial conditions. “There are echoes in the current tech investment surge of the dot-com boom of the late 1990s. It was the internet then, it is AI now. We're seeing surging valuations, booming investment, and strong consumption on the back of solid capital gains. The risk is that with stronger investment and consumption, a tighter monetary policy will be needed to contain price pressures. This is what happened in the late 1990s. There is also the flip side of the boom. Markets could reprice sharply,” he said.

3. China’s economic slowdown and structural weaknesses

The IMF flagged serious concerns about China, pointing to its property sector crisis, high local debt, and declining productivity. The country’s pivot to state-backed industrial sectors, such as electric vehicles and solar, has generated growth, but at a potential cost of misallocated resources and rising fiscal burden. China’s ongoing slowdown could spill over to commodity-exporting nations and global supply chains.

4. Fiscal fragility and pressure on central banks

Many countries have failed to rebuild fiscal buffers after the pandemic. With high public debt, rising interest costs, and new spending demands, from climate adaptation to defence, governments face increasing pressure. "As fiscal constraints become more binding, we are seeing rising pressures on central banks. Calls to ease monetary policy, whether to support activity or reduce government debt service at the expense of price stability, always backfire,” he added.