IMF 2026 | AI, debt and the global investment outlook

Jeremy Maggs: Global growth is holding up. But where will investors commit capital as debt, inflation and geopolitical risks persist?

I’m Jeremy Maggs, and welcome to this special edition of No Ordinary Wednesday, its Investec’s podcast on what’s moving markets and shaping economies.

In this episode we focus on the International Monetary Forum and World Bank annual meetings in Bangkok, where policymakers and financial leaders gathered in recent days.

On the sidelines, Investec hosted its annual IMF breakfast, bringing global financiers into a conversation with South Africa’s finance leadership.

We ask - what did that discussion reveal about South Africa’s standing with international investors? How are global risks changing the cost of doing business? And what does the outlook mean for companies in South Africa and the UK?

To take us through one of the most important weeks o n the global economic calendar, I’m joined by Investec South Africa CEO Cumesh Moodliar and Head of Bank Funding Group Andrew Lillywhite at Investec UK.

Cumesh, Andrew, welcome to No Ordinary Wednesday.

Jeremy Maggs: Cumesh let’s start inside the annual Investec IMF Breakfast, who was in the room, and what were their main concerns about the global economy?

Cumesh Moodliar: Thanks, Jeremy. We really had a great attendance. A range of stakeholders attended including a group of international investors, global financial institutions, across all of the banks that we would deal with, and a number of DFIs as well. I think what's really good about the breakfast is its theme around the IMF and World Bank meetings and we've used it over the last period of time as a base to often tell a South African macro story and positioning of it. That's the sort of broader context.

The three or four key themes that came out Jeremy it also linked to our engagements over the last few days meeting various banks representing the US, European, Indian banks and a number of these global banks, was there three key thematics that that are really feeding through at the moment. The one is obviously the global tensions and what's characterised as being a level of fragmentation that we are seeing and that's one of the thematics that people are looking at, evidenced by what's happening in the Middle East, evidenced by what's happening in Europe with Ukraine and Russia and how those parties are being positioned.  That's one thematic just the global geopolitical situation.

The second thematic has really been the one that I think we chatted about last year, around AI. But I think the conversation this year switched a bit to a lot of the market growth has been driven by the continued AI boom and we've seen how these hyperscalers are getting valued. We've seen the level of roll out of big data centre players to support AI infrastructure and a lot of that has actually kept, and probably cushioned, some of the global economy from the real effects of the geopolitical tensions and the war in the Middle East. So, that was one thematic that people discussed. I think AI on its own is probably a topic we could spend a lot of time on just talking about the ecosystem play that it represents but also the potential market risk.

The third issue was around energy prices and the risk of these rising energy prices to inflation which we've already seen manifest in a number of international geographies and including obviously South Africa.

Jeremy Maggs: Cumesh, you’ve highlighted geopolitics, AI and energy prices. Where did financiers’ views differ most on the global outlook?

Cumesh Moodliar: So, what was really interesting was if I look at the number of banks that we engaged with. I think what was very clear was the American banks were relatively optimistic. A view that the American consumer has been very resilient through this and has continued to spend. US consumer spending power is there. Corporate investment and corporate lending's really been driven off, my earlier point, around the technology boom around AI and how that's driving a lot of infrastructure investment.

And then as much as there's been a significant increase in fuel prices in the US that second round effects are not yet in the economy. So very robust views with some levels of concern around the geopolitical tensions but an outward expansionist mindset from the US banks. When I compare that to some of the European banks we engaged with, I think there was far more conservative approach and a view around some of the risks that are perhaps inherent in Europe right now in some of the most industrialised economies like Germany, France, etc. And how the current geopolitical tensions potentially play into a greater level of fragmentation.

So, far more conservative views from the European banks, but a consensus view around the opportunity in emerging markets, opportunities for growth in emerging markets, and certainly from both American and European banks, a real interest in the opportunity around the African continent. What you're seeing is an acknowledgment that in many cases banks from the east, particularly Chinese banks and the Chinese government, have really been positioning themselves along the African corridor in many ways. The debate there is around critical minerals resources and commodities and that it would be important to have more global influence and that it doesn't create a further deeper polarity in the way the market's being viewed. So really an interest in that and an understanding of wanting to learn more around what that market could offer.

Jeremy Maggs: Andrew, let’s bring that back to business planning. The IMF’s outlook assumes energy disruption eases and AI investment continues to support growth. Which assumption would you be most cautious about building a business plan around?

Andrew Lillywhite: It's a good question. I think both clearly are very significant drivers of decision-making and macro policy in the world at the moment. I think the AI spend is happening and there's a lot of money clearly already been spent. The return on that capital is really yet to be seen. But I think the fact that if you're a peripheral business to that investment, that money is largely raised or is certainly very much on its way to being raised and being deployed. So, I think there's some degree of certainty that that roll out is happening

If you are building a business predicated on the oil price coming down in the near term, I think that's a more challenging assumption to be very confident around. As Cumesh was saying, the geopolitical situation remains incredibly fragile and I think that is a very significant concern. A lot of the forecasts that we've seen from people over the last week, and a lot of the conversations really mirror some expectations that sit in forward curves. I just believe that the confidence in those forward curves around oil prices is relatively fragile. I think clearly a protracted period of time with the oil price where it is today or even with upward pressure on the oil price has so many knock-on consequences for cost of borrowing, for consumer confidence, and for second round effects, as Cumesh was saying as well, which have largely been muted so far.

But I think you have to watch that in food, you have to watch that in the ability of businesses to protect consumers from that pass-through effect and then subsequently the push forward in wage pressures and the spiral that may arise from that. So, I think the risk is, in the assumptions, is probably, I think I would be more cautious around building a business investment proposition that was predicated on oil prices falling in near term. I think there is a reasonable amount of uncertainty as to whether that will manifest in the near term.

Jeremy Maggs: Given that uncertainty, Andrew, where’s the biggest gap between the growth forecasts and the conditions businesses actually face?

Andrew Lillywhite: I think there's a big gap in that the forward curves, as I say, look absolute, but there's a huge amount of uncertainty in them. So that is where the gap in between, if you like, forecast and reality is going to exist. The timing of resolution in the Middle East or stability, at the very least, around oil supply, the continuing escalation of conflicts around the world and the disruption that can cause, is hugely influx at the moment.

I think that forward curves are volatile because they're trying to price in multiple different scenarios and there is, if you like, a bit of a reversion to the mean over time in perhaps oil prices. But I think, as I say, that is uncertain and that is the reality of what customers or what investors are going to have to face going forwards. That is where the gap is the duration of this geopolitical disruption. Then perhaps the second order effects on inflation and the compounding of that, that can happen is a real challenge for people. I think that is where the gap between forecast and reality exists, where we're thinking about predicting forward GDP growth and stability and growth and the continued resilience of a consumer.

Jeremy Maggs:  Cumesh, let’s turn to where international investors are prepared to commit capital. How are trade tensions and geopolitics shaping those decisions? From your conversations in Bangkok, which markets are attracting attention, and why?

Cumesh Moodliar: We attended an economic update by the chief economist of one of the global banks and the title to that presentation was “tightening tensions” and I think that summed it up. You've got a lot more geopolitical tension in the system than we've probably seen in a long time and a risk of a potential East-West type of fracturing together with middle countries in the context of all of that. I think that's what the Canadian Prime Minister Mark Carney referred to, as how the middle countries need to effectively set up strong engagements trade relationships because of the tensions that are existing from a superpower perspective.

What you can see is that geopolitically, your positioning and the diplomacy that's needed now is probably at an all-time high. I think if one looks at where investors are looking, and we're sitting here in Bangkok as we're talking, the East is certainly I think of interest to investors where you're getting single high mid single digit to potentially double-digit growth in GDP in some of these economies. And the idea that you could be deploying capital into fast developing consumer country focused economies, I think, is something that investors are looking at and also where there's a level of strong fiscal management. So that's one thematic.

Certainly, the East appears to be very attractive, and banks are looking further field than their own domestic markets. The second has been as I said earlier just the potential opportunity that the African continent represents particularly from a resources and commodities perspective. So, you are seeing that. If I had to look at it in the context of South Africa the opportunity to participate in some of the large infrastructure projects has also piqued the interest of some of these global financial institutions.

Jeremy Maggs: Andrew, there’s also the cost of that capital. The IMF has warned about rising government borrowing costs and the risks they pose to financial markets. How does that pressure feed through to the cost and availability of finance for businesses?

Andrew Lillywhite: It's a great question, Jeremy. I think it's a challenging mechanism, but it's really, I think, through investor demand for a risk premium is my reflection on that. I think you need to look at government borrowing costs and the spread to risk-free rates that governments are going to have to pay for funding, when thinking as an investor about where you're prepared to lend money to banks and where you're prepared to lend money to corporates. As that risk premium rises, there is an effect, a transmission mechanism, if you like, that goes through to corporate borrowers but goes through to banks in terms of price of debt funding that they raise in the capital markets, either just from a funding perspective or from a capital perspective.

That manifests itself in the bank's own cost of funds and manufactures its way through into the real economy, through the price at which banks are prepared to lend to corporates as well. I think we've gone through a long period of time where credit spreads have been incredibly tight in markets. Banks in general have been able to raise money very cheaply. And one of the themes particularly coming out in the conversations we've had this week with European banks, is that deposit markets are materially tighter than they have been.

The supply of liabilities to banks balance sheets is becoming more expensive. I think that is manifesting itself both in elements of economic pressure that is manifesting on consumers in the competition for that's prevalent in European markets absorbing liabilities and perhaps redirecting that to activities around the world. But also, we are seeing, and we have seen, most recently as well with high levels of volatility of government bonds. You got the French economy and the spreads that the French economy trades at by reference to the German economy. They're at extremely wide levels, that political disruption confidence in governments starts to push risk premiums up all over the place and that's through multiple different channels that finds its way I think into the cost of capital for businesses.

I think really that's comes through relatively slowly, but I think it is a pressure that's there and I think that it's via the banking system it's via the capital market system, that's certainly happening and there certainly that pressure in Europe. Although interestingly it feels, and again to one of Cumesh’s points, that actually the supply of liabilities in the more emerging market economies appears to be very strong. That mechanism is maybe going to be less acutely felt perhaps in some of those economies and particularly as they're doing a good job I think of anchoring their inflation expectations in society as well. I think in Europe that is a little bit more of a challenge and that's what's putting pressure on government borrowings and government balance sheets and consequently it's putting upward pressure on the price at which people are prepared to take risk in those economies.

Jeremy Maggs: So, Andrew, beyond the next central bank interest rate decision, what else should businesses be watching?

Andrew Lillywhite: Another good question. I think there's a lot to watch. The geopolitical situation and how that unfolds is important. The fragmentation that Cumesh talks about is extremely important and the way in which the European economies are able to move quickly around regulation and get themselves operating in harmony in a world that you know requires us to stand closer together, not farther apart, particularly in European nations. I think the embedding of those inflation expectations is a big one that will really create problems if people's forward expectation of inflation starts to manifest in those second-round effects.

Pushing up the price of contracts, pushing up the price of labour, watching some of that transmission mechanism maybe come through food prices which has been a little bit muted to date as well. I think all of those things could really move us towards a scenario where, which I think rates markets are pricing in their upward trajectory of rates, that could manifest in more sustained inflation.

Interestingly though, most of the predictions that we've seen from economists that we've engaged with or commentators through this week feel that, in p articular, most yield curves are overstating the amount of rate hiking that we will see in the developed market economies. Maybe feel like there's one more pre-emptive hike in a number of them. That's quite different to what the market expects, but I think there is clearly risk around all of those assumptions.

Jeremy Maggs: Andrew, let’s start with the UK. The IMF has raised its growth forecast to 1.3% this year, helped by AI-related investment, but expects 1.2% next year. Does that improved outlook match the willingness to invest that you’re seeing among businesses?

Andrew Lillywhite: The answer is very multifaceted. Probably does lie in all of the things we've talked about already today a little bit in how geopolitical tensions, oil prices, consequently actions required on monetary policy and also actions taken by governments around the fiscal situation are all going to play into that. The benefit of the AI spend is relatively narrowly felt. I would say at the moment it's been very significant but perhaps the breadth of the effect of that is not felt in a uniform way.

So, I think that for businesses to be confident about broader based economic growth, you really do need to see stability in some of those factors, a little bit more predictability. I think the Cone of Uncertainty for decision-making is very wide at the moment. That manifests itself in the ability to make decisions about longer-term future investments and that the payback periods on them or the assumptions that you embed within making those decisions. I think if you're buying businesses and selling businesses, it makes it very difficult to value those businesses in the face of some of those volatile outcomes. So, I think the forward predictions of GDP growth are probably based on a move back towards a world which is a little bit more stable than the than the one that we've seen over the last 12 to 24 months.

Jeremy Maggs:  Now Andrew, you say the benefits of AI spending are still narrowly felt. Is confidence broadening beyond the businesses directly benefiting from technology investment?

Andrew Lillywhite: I think it's hard to say. I think for many businesses you're probably in a period of time where actually they're having to invest money in understanding how to deploy AI in their businesses. What does it mean for their workforce planning? How do they build the guardrails around AI. How do they reinvent operational processes to really get the benefits of those things? There are maybe quite a lot of the joyless work of research and quick task or low-level tasks that are being accelerated by embedding relatively rudimentary AI within businesses.

But really transformational change and getting the benefit of that at enterprise scale I think is in the very early stages for a lot of businesses. Clearly there's a number of businesses that are benefiting directly just from the technology spend. But again, it's relatively localised both globally and sectorally. If I had to say is it being broadly felt right now, I would say it's being broadly talked about and certainly it would be very high on all board agendas and it was absolutely high on the IMF agenda this week. But I think that the real adoption embedding and transformational change and scale opportunity that perhaps comes from some of these fantastic technologies, is going to take a little bit longer to come through.

Jeremy Maggs: Cumesh, let’s bring that question of confidence back to South Africa. The IMF has trimmed the country’s growth forecast to 1% this year, from 1.1% in July, while recognising progress on reforms. What would persuade investors that the country can grow materially faster?

Cumesh Moodliar: So, I think Jeremy just taking that into context in the South African market a few things. One just the base case in terms of where fiscal monetary policy metrics are - is really strong. So, we're coming off a much higher more solid foundation for economic growth. The concern that one has is when you see these downward revisions which I think largely has been caused by factors outside of South African control. At the outset of this year, I think the forecast budgeted GDP growth was around one and a half percent and as the war broke out you realise the impact that it had on potentially inflation and actually that materialised into inflation as well as the broader geopolitical tensions that it caused. And ultimately an interest rate environment that turned from a cutting cycle into a hiking cycle. That obviously slowed down overarching growth.

But key metrics debt-to-GDP is actually coming down. I think we see it in this current year. We believe it would peak at around 77% which is down from the prior year of 79%. And we see a downward trajectory into the coming period. So, there is a significant factor. We also see that the main deficit could fall below 4% of GDP for the first time since 2016. And similarly, we think there's really positive momentum from a ratings agency perspective that the outlook looks far more positive than it looked 2 years ago. Both Moody's and S&P will do their sovereign reviews in November of 2026. There's some hope that over the coming 18 to 24 months, there's optimism for an upgrade.

So, a lot of those things, all of those indicators are facing the right direction. A couple of indicators that we refer to is; 1) how does local government elections play out. We think that will test coalition stability, so political stability, some positive sort of middle ground consensus on how some of the key metros in South Africa will be run and hopefully the key infrastructure projects needed by those metros are actually started and I think that some of it is key. So, the overarching framework is good. We appear to be caught up in a low growth vortex, and I think that investment confidence will be triggered not just by one or two factors but by multiplicity of factors.

One of the key points of feedback that we certainly got over the last few days from international investors has been executable plans. So, it's one thing having really good ideas around for example we know work that has to be done around transmission and distribution network, rail networks and water infrastructure but what people are not seeing enough of is, what would be referred to as, bankable or executable plans in that space. So, I think very important that as a country and at a government and business partnership level these plans are put together as quickly as possible and presented to the market in a very clear and transparent way. I think that's very important and I believe that could be one of the most significant catalyst for growth. We know there's significant infrastructure spend needed and that presents real opportunity.

Jeremy Maggs: And in those conversations, where did you hear the strongest appetite for long-term investment in South African businesses or infrastructure, rather than buying bonds or shares?

Cumesh Moodliar: So, I think all three are obviously interrelated and the fact that in many ways now Moody's or S&P upgrade is very key for us. In other words, a ratings upgrade and hopefully to get to investment grade will be a significant trigger Jeremy as a starting point, but we accept that that could be some way off. Secondly, appetite by lenders for larger ticket infrastructure projects provided they're well considered and carefully thought out and clearly executable. I think that would be where we've seen a fair bit of appetite.

Also, a view just on the equity side of things that South African equities talk trade at a relative discount to value. So that there is room for growth and opportunity to look at how equities would also attract similar capital inflows. I would add, just as a closing point on this question, is the resources and commodities are key identifiable sector that I think can attract ongoing investment. What's very important around that, and this would be a message to government, in that respect, would be that the legislation has to be seen to be enabling by multinationals large corporate mining houses to commit capital and that legislation is not just from the mining sector, but also the way we look around equity equivalents empowerment transactions etc - to create a far more transparent approach for investors to that I think would be critical.

Jeremy Maggs: So, what’s holding those commitments back: access to capital, or projects that still need approvals, clear contracts and predictable revenues?

Cumesh Moodliar: I think it's not about access to capital. We had the Deputy Governor of the Central Bank Rashad Kasim on our panel this morning and one of the points that he made was that there's no shortage of capital and or liquidity. So, we can tick that box. It's around having clear executable plans that create business certainty. That's where we believe there's the real opportunity.

 Another interesting point is we think that potentially the minister will do his medium-term budget speech next week, but one of the key things is we believe that there's potentially a revenue windfall. A lot of it has come off the back of corporate taxes and a lot of it has come off the mining sector. So that gives us all the more reason to ensure that we can create greater capital investment into that sector among the other sectors that we'd be looking at too.

Jeremy Maggs: Let’s finish with one sign to watch from each of you as we head towards 2027:

Andrew, what would tell you that global financing conditions are becoming more supportive of business investment?

Andrew Lillywhite: Jeremy, I think if it was one thing that would encapsulate a number of the factors that we've been talking about today already around either inflation or energy security, stability of the oil price, geopolitical tensions, and AI, it would probably be that longer-term interest rates that yield curves flatten that we start to see more stable positions in longer-term interest rate curves.

I think that will probably reflect a number of positive environments for a number of those factors, reflect that government indebtedness is perhaps is not such a high issue on investors’ minds and really that government borrowing burden is high because expenses incurred in supporting either be that welfare or investment in defence or in servicing government debt or put upward pressure on inflation and other factors. 

So, I think you know if we see an environment where we've got flatter yield curves, it's probably means there's good news all around on most of those factors that have been pushing in the opposite direction. So, I think that would probably be the indicator that financing conditions have been more supportive of investment because it would predicate that there is more stable outlook in the world than we have experienced over the last little while.

Jeremy Maggs: Cumesh, what South African milestone would show that the interest expressed in Bangkok is turning into committed capital?

Cumesh Moodliar: Jeremy, that's probably a fairly difficult question to answer because I don't think it's a single factor. Just to touch on something that Andrew mentioned was that right now the energy pricing etc. is a very key factor in all of the consideration because of the knock-on and secondary impact of that as that sort of hardens into the economy and I think in the current economic period, we've had a level of cushioning of it because there's been fiscal support.

The one factor for me outside of that would be looking at it and saying that a positive ratings upgrade would open a lot more investment across both equities, bonds, and fixed infrastructure. I think that's what you'd like to see. So, the one factor that I think could really shift is if we return to investment grade, that would be probably one of the most significant positive signals to send to the markets.

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