Despite geopolitical realignment and energy pressures, the world economy has remained remarkably resilient. October’s World Economic Outlook from the International Monetary Fund projects global growth of 3.1% for 2026. For Dan Katz, first deputy managing director, two opposing forces are shaping the outlook. While the energy shock and partial closure of the Strait of Hormuz have weighed on aggregate growth, a ‘very, very robust technology investment cycle’ is powering growth in many economies.
Katz spoke with OMFIF vice chair and chief economist Mark Sobel days after returning from this year’s IMF-World Bank annual meetings in Bangkok. Formerly chief of staff at the US Treasury, Katz took up the IMF post in October 2025 and oversees multilateral surveillance, monetary policy, financial markets, debt and international economic integration.
Beneath the headline numbers, however, countries are being affected unevenly, and the interactions between multiple ‘very fundamental regime shifts’ can be difficult to parse. This, argued Katz, was the dominant theme at the annual meetings. Risks are not skewed especially far to the downside or upside – we are instead living through ‘a unique period of complexity’.
At the heart of this lies geopolitical changes, as countries re-evaluate the nature of international economic integration. Trade is where this is most visible so far, and as trade patterns shift, Katz said financial linkages will follow. With flows adjusting but stocks yet to catch up, this may be a profound transformation that is ‘only getting started now’.
Return of the price-sensitive buyer
The current interest rate environment marks another regime shift. Katz noted that for more than a decade after the 2008 financial crisis, quantitative easing contributed to artificially low rates and compressed term premia. Today, as rates normalise, the marginal buyer is ‘not a price-insensitive investor like a central bank is, but actually a price-sensitive investor’. Such buyers ‘will tend to show up at a price’, as Katz’s own Bloomberg screen showed mid-conversation, with 10-year Treasuries rallying by 12 basis points, and French government bonds (OATs) rallying by 11 basis points.
The recent rise in yields differ across jurisdictions, Katz explained, and the implications for financial stability are ‘actually quite different depending on why we’ve seen a move in rates’. In the US, higher rates in part reflect a tighter monetary policy stance and estimates of a higher neutral rate amid relatively strong growth. In countries like France, the increase has been more closely associated with fiscal concerns, while Japan reflects a combination of a reassessment of the Bank of Japan’s policy path and higher term premia.
Katz also pointed to a broader problem facing many economies: ageing populations are putting pressure on public finances, with more spending directed towards pensions and healthcare. The question, for Katz, is whether governments can sustain ‘a social model that was designed for the demographic era of the 1960s to the 1970s’.
Artificial intelligence, investment and cyber risk
Asked whether the AI boom could go the way of the railways or the dot-com bust, Katz pointed to important differences. Dot-com firms were valued on clicks rather than cash flow, and railways added capacity for which there was not yet any demand. AI, by contrast, is compute-constrained, with spot prices above contracted ones and demand that is ‘insatiable, at least right now’. But oversupply remains possible, and ‘we need to be very vigilant’, Katz warned.
Equity gains have concentrated among infrastructure providers with high barriers to entry, from memory-makers Samsung, SK Hynix and Micron to semiconductor companies like TSMC and Nvidia. Their run-up, Katz argued, is ‘often a result of validation of current earnings growth’ rather than hopes for the future. The real question is whether those earnings last. Even if there were a distress event across the AI sector, Katz noted that low leverage and high credit ratings among many borrowers mean the impact is more likely to fall on growth than on the financial system.
Katz also highlighted cyber risk, noting that AI-enabled tools are strengthening both offensive and defensive capabilities, while capacity constraints may leave some emerging markets and low-income countries particularly exposed.
Case by case
Higher global rates are creating considerable pressures for emerging markets and low-income countries, though Katz cautioned against generalising. Some countries need debt treatments, but more generally Katz sees liquidity constraints as the bigger challenge.
Although debt levels have stabilised since the Covid-19 pandemic, and in some cases fallen, interest costs keep climbing. For countries that have spent decades narrowing spreads through institutional reform, rising global base rates ‘may actually outweigh the benefits from the sound policies’ they have pursued. The IMF-World Bank three-pillar approach (domestic reform and resource mobilisation, external financial support and lower debt-service burdens) is designed to give countries with strong reform programmes the ‘breathing space’ to see them through.
Where debt restructuring is needed, Katz emphasised the importance of coordination, noting that ‘no one will ever be happy’ with the process but that it can still deliver a better outcome than the alternative. Initiatives such as the Global Sovereign Debt Roundtable have helped to improve coordination between traditional and newer official creditors and the private sector. Senegal, pursuing a treatment under the enhanced G20 Common Framework, ‘will be a very big test’ of whether the system can deliver.
A global institution
The Fund’s impact, Katz argued, rests on its credibility, coherence and cutting-edge knowledge of the global economy. Fund staff have called this its ‘year of reviews’, covering conditionality, surveillance, the Financial Sector Assessment Programme and the external balance assessment methodology. All have aimed to make advice more granular, since ‘assumptions at the global level often break down at the local’. Advice must also be consistent with the Fund’s global analysis, with each country’s spillovers feeding into the wider picture.
Katz dismissed the notion that the Fund is an advanced-economy institution as ‘a little bit of [a] straw man’ – with 191 members, the Fund is ‘global by design’. Some of the Fund’s most valuable work is often underappreciated, and coming from the Treasury, Katz admitted he hadn’t known much about the Fund’s capacity development and technical assistance. Demand is ‘off the charts’, especially as official development assistance declines, and many donors are increasing support.
The Fund is also exploring how AI can strengthen its surveillance and capacity development. On the Fund’s resources, the quota increase under the 16th General Review – which would increase members’ capital subscriptions to the Fund by 50% – still awaits ratification by the US Congress. Katz noted strong bipartisan support for the Fund’s role and is ready to engage further once a legislative window opens.
Jessica Pretorius is Programmes Coordinator at OMFIF.
Interested in this topic? Subscribe to OMFIF’s newsletter for more.