Let's hope they're still clapping at the end. Kristalina, I know we want to talk a little bit about kind of the global world order, whether we're taking it for granted. I mean, we think about a lot of the short-term risks that have arisen as of late that now seem to be coming more structural risk. And earlier this year, you told the world to sort of think the unthinkable. Where do we stand right now? Are governments thinking hard enough?
Well, where we stand is: one, the world economy has proven to be more resilient than many feared. The forces that define where it is headed remain strong and pushing in opposite directions. We have a negative energy supply shock. It is holding us back. And we have a positive AI investment demand shock that is lifting the economy up.
Three, what we have seen is remarkable action when necessary, and that is what I am more optimistic about. We have seen emerging markets, developing economies over the last decades, building strong institutions, including in the Gulf. We have seen remarkable, fast action when necessary to counter the energy supply shock. And while there is a lot of talk about a fragmented world, and indeed it is less unified, it is still a world in which we are interdependent and we cooperate. So this is what I see: more optimism. But also, we have to be careful and cautious. The risks are high and uncertainty is the new normal.
Well, as that uncertainty prolongs itself, does that make it harder to manage? You talk about resiliency. We're looking at 3% global GDP growth. That's phenomenal. But that's down from your previous forecasts earlier in the year. They've been revised down twice. And you have another forecast coming up in mid-October. And I'm going to assume — correct me if I'm wrong — we'll probably also have to be revised down.
Well, we have been revising up and down, up and down, exactly because of this uncertainty within which we operate. Having growth that would be hovering around 3% is a massive achievement given all the shocks we have been experiencing. And yes, we will be providing new projections that would be reflecting the fact that the risks remain high. And let me just highlight three. First, inflation is sticky. We are not anticipating quick resolution. And that means that many central banks have to tighten. We have seen action in Europe. We have seen action in the United States. More may be necessary.
Well, when you fight inflation, and rightly so, to secure price stability, what it does is it increases the cost of that service.
So this is the second problem that has been high. And when interest rates climb up, that service becomes so much more difficult. And I want to say clearly to everybody that we have been warning that fiscal consolidation must take place. And we are seeing a lot of understanding, but not enough action. And three, we have been quite enthusiastic everywhere about AI. But AI also brings with itself potentially risks that I want to remind the audience about. That is the amount of... We always overestimate the positive impact of new technology in the short run. We underestimate it in the long run. What does it mean? It means that risks are front-loaded. Financial stability risks. If AI disappoints, because we have these high expectations, if they do not materialize, disappointment may lead to potentially a shock to the system. There is a lot of leverage around AI. There is a lot of circular financing. And that is something that we have to be mindful of.
Does that circular financing and some of the issues surrounding it — does that appear to you as a growing financial stability risk, or is that something...
It does. It does. It does. Because what it tells us is that, should there be a loss of confidence, then it is very — you have this loop that you cannot easily handle. And we are seeing quite a lot of debt financing and quite a lot of interdependence when it comes to financing.
Whose problem is that, though? Is that primarily a US problem, a European problem, or is that a global problem that smaller countries will have to bear?
It is primarily concentrated in the US. But there are two things we need to pay attention to. One, the supply chain of AI includes many other players. You look at countries in Asia like Malaysia, Thailand, Korea, Singapore. They are integrated in the AI value chain. And actually, Korea is one of the countries where the risk of financial impact, should there be disappointment, is quite visible in the way the stock market in Korea has been going up rapidly, up and down. And of course, we see other parts in Europe. You have critical production in the Netherlands within the AI value chain. So that concentration in the US doesn't mean that it is a problem that is only — or an opportunity combined with the problem — only concentrated in the US.
This does get to the idea, though, of who is actually bearing the burden for a lot of these risks. And let's just talk about the energy situation. There have been a lot of moves, including by the Saudis and the UAE, to find alternative routes around the Strait of Hormuz. You've had nations like Nigeria, India, other emerging market nations step up their refining capabilities. Does this signal a greater shift structurally where non-US, non-China, the non-major nations are the ones who take on that burden and maybe even take it on successfully?
