IMF warns of market shock, but optimistic about Israel's economy

The International Monetary Fund warns of a sharp rise in global government bond yields, driven by soaring inflation, massive public debt, and growing competition for investor funds from AI giants. At the same time, Israel's growth forecast for 2026 was revised upward to 4.5%, up from 3.5% last July, seen as a confirmation of the Israeli economy's recovery after the war.

The International Monetary Fund (IMF) has issued a stark warning about the risk of a sharp and uncontrolled rise in government bond yields in developed economies. In its Global Financial Stability Report, the IMF points to a combination of soaring inflation, public debts at their highest levels since World War II, and growing competition for investor funds from tech giants like Google and Meta, which are raising hundreds of billions of dollars in debt to finance AI development. Their share of investment-grade bond issuance has jumped from less than 1% in 2024 to about 10% today. Global growth is expected to slow from 3.5% in 2025 to 3.1% in 2026. Alongside this, Israel's growth forecast for 2026 was revised upward to 4.5%, up from 3.5% last July. This marks a confirmation of the rapid recovery of the Israeli economy after the war: real GDP growth stood at 3.5% in 2025 and only 1.7% in 2024. The fund warns that a sharp rise in yields will lead to a decline in the value of many financial assets and erode the value of bonds used as collateral, potentially creating a domino effect. However, liquidity indicators in the US, Europe, and the UK remain stable.