The Bank for International Settlements (BIS) has warned that the collapse of the artificial intelligence (AI) bubble, the potential resurgence of inflation, and fiscal burdens are emerging as significant threats to the global economy.
According to a report released on June 28 by Bloomberg, the BIS identified these factors as current "pressure points" that could amplify vulnerabilities within the financial system. The report stated, "The global economy remains in a state where progress and risks intersect," adding that "the resilience of the economy is increasingly being tested and pressured."
This report comes ahead of the annual central bank forum hosted by the European Central Bank (ECB) in Sintra, Portugal, from June 29 to July 1. The BIS expressed particular concern that a downturn in AI investment could trigger shocks across stock markets, credit markets, and the broader economy.
The BIS noted, "Disappointment in (AI-related) returns could trigger sudden capital withdrawals and transform a capital expenditure (CAPEX) boom into a prolonged investment downturn, leading to cascading effects on financial conditions." It emphasized that corrections in major stock markets today could result in larger macroeconomic consequences than in the past.
Furthermore, the BIS warned that a collapse of the AI bubble or a reassessment of risks due to high interest rates could deliver shocks to the credit market similar to those experienced during the 2008 global financial crisis. The BIS also identified vulnerabilities in the funding structures of the AI industry, citing the so-called "circular finance" transactions where equity investments, debt, and supplier-customer contracts are intertwined.
For instance, when semiconductor companies and hyperscalers (large technology infrastructure firms) acquire stakes in AI developers or cloud service providers, these companies often commit to purchasing semiconductors or computing power over several years. There is also a growing trend of outsourcing the construction of AI data centers to third parties, which then lease the facilities back to hyperscalers under long-term contracts that may include termination clauses.
The BIS pointed out that "the terms of such transactions are often not properly disclosed, and there is a risk of the same assets being pledged multiple times."
The possibility of inflation re-emerging was also highlighted as a major risk. Bloomberg noted that this contrasts with some optimism that energy supply shocks triggered by the war in Iran may ease.
The BIS suggested that disruptions in energy supply may not yet be resolved and that infrastructure recovery could take time. There are concerns that the effects of existing shocks could linger longer in prices, aligning with the perspectives of major institutions like the ECB.
Last week, the U.S. Personal Consumption Expenditures (PCE) price index rose 4.1% year-over-year, marking the highest level in over three years since April 2023. This has raised concerns that inflation indicators in the Eurozone could significantly exceed the authorities' target of 2%.
* This article has been translated by AI.
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