Global Economy Faces Risks from Tariffs, AI Bubble, and Debt

As global finance leaders gather in Washington for the IMF and World Bank annual meetings, three major risks are in focus: escalating trade tensions, a potential AI-driven market bubble, and record-high global debt.

Despite recent resilience, fueled by strong U.S. consumer spending and massive investment in artificial intelligence, experts warn that current momentum may not last. Recent tariff threats, particularly from the U.S., have renewed fears of a trade war. While businesses are absorbing costs for now, Harvard economist Karen Dynan cautions that global growth is expected to slow, with GDP forecasted to fall from 3.2 percent in 2025 to 2.9 percent in 2026.
At the same time, the AI investment surge has pushed market valuations to levels not seen since the dot-com era. IMF Managing Director Kristalina Georgieva noted that if a sharp correction occurs, it could trigger broader financial instability, especially in developing nations.

Debt is another growing concern. According to the International Finance Association, global debt surged by $21 trillion in the first half of 2025, hitting a record $338 trillion. The spike is largely driven by government borrowing, with G7 countries seeing the steepest increases. In the U.S., federal debt held by the public is projected to reach 116 percent of GDP by 2034, the highest in history.

With these risks converging, policymakers will closely watch this week’s Global Financial Stability Report and the IMF’s updated World Economic Outlook. Statements from G7 and G20 leaders will also be critical as markets remain on edge.

Whether these warnings prompt immediate policy action, or are overshadowed by investor optimism and fear of missing out, remains to be seen.