IMF warns central banks to brace for AI slowdown as tech stocks plunge worldwide

The International Monetary Fund’s managing director, Kristalina Georgieva, told an audience at the IMF headquarters in Washington on 6 November that central banks will need to factor in any deceleration of AI‑driven growth when they assess policies to curb persistent inflation. Her comments came after a steep rout in technology stocks on 5 November, which spread to equity markets in Europe and Asia as investors feared that the Democratic victory in the United States mid‑term elections would bring tighter regulatory scrutiny of artificial‑intelligence systems and slow the build‑out of data‑centre infrastructure.

Georgieva highlighted that the AI investment boom has been lifting growth in some economies, offsetting a negative oil‑supply shock linked to the war in the Middle East, but she warned that the same boom is adding to price‑stability pressures and financial‑stability concerns. She did not repeat the IMF’s October forecast that a sharp drop in AI investment could shave 1.1 % off global GDP by 2028, but she acknowledged the recent market volatility and said a slowdown would need to be incorporated into central‑bank decision‑making.

Background

The technology‑stock sell‑off was sparked by concerns that the newly elected Democratic majority in the US Congress would introduce a wave of legislation targeting AI systems and data‑centre development as early as January. Reuters reported that congressional aides and advocacy groups expect new rules that would mark a sharp shift from the previous Republican‑led Congress, which had largely promoted AI development and avoided restrictive measures. The market reaction was swift: the Nasdaq fell 5.5 % and $3 trillion was wiped off the market value of S&P 500 constituents, while the Dow Jones slipped 0.22 % in early US trade.

Across the Pacific, the impact was equally severe. Japan’s Nikkei index dropped 6 %, its deepest one‑day fall since April 2025. South Korea and Taiwan saw their benchmark indices plunge more than 8 % after the opening bell, before trimming losses later in the session. In Europe, the FTSE fell 1.5 %, the CAC 1.2 % and the DAX 2.2 %. Asian chipmakers felt the pressure as Samsung Electronics and SK Hynix fell nearly 6 % and 9.4 % respectively, while Taiwan’s TSMC slid up to 8.5 % before closing down 4.7 %.

Industry voices described the sell‑off as a correction of “rosy illusions” about AI’s future. Dong Baozhen, chairman of asset manager Lingtong Shengtai, warned that the US market’s downturn could test whether AI bull markets elsewhere can sustain themselves. In Japan, SoftBank Group and Kioxia each dropped 11 %, prompting a rise in the cost of insuring SoftBank’s debt to a four‑year high.

Why it matters

The volatility has immediate implications for investors, regulators and policymakers. Retail investors and hedge funds faced margin calls as AI‑related equities tumbled, prompting South Korean Finance Minister Lee Hyoung‑il to temporarily ease rules on leveraged retail investments. In Taiwan, the Ministry of Finance instructed senior executives at state‑owned banks to support the market, reflecting concerns that a stalled AI infrastructure expansion could hurt smaller firms already constrained by higher interest rates and tighter credit conditions.

For central banks, the episode underscores the dual challenge of managing inflation while safeguarding financial stability. Georgieva’s warning signals that a slowdown in AI‑driven growth could exacerbate price pressures, especially if the sector’s high valuations correct sharply. The IMF’s earlier analysis suggested that a steep decline in AI spending could reduce global GDP by 1.1 % by 2028, with a 1.8 % contraction in US output, highlighting the macro‑economic stakes.

What happens next

According to Reuters, Democrats plan to introduce a suite of AI‑related regulations and data‑centre laws in January, once they take control of the US Congress. The proposed legislative agenda is expected to focus on oversight of AI systems and tighter standards for data‑centre construction, marking a departure from the previous Republican‑led approach that favoured minimal regulation. Market participants will be watching the implementation of these rules closely, as further policy shifts could influence the pace of AI investment and, by extension, the inflation outlook that central banks must navigate.