IMF warns debt-fuelled AI boom could trigger financial market turmoil

• The IMF warns that AI investment could destabilise markets if borrowing and profit expectations outpace productivity gains

• Heavy concentration and financial links between technology companies could spread losses beyond the sector and across borders

• AI could boost annual global growth by around half a percentage point over the next decade, but the benefits will take time

The International Monetary Fund (IMF) has warned that the artificial intelligence investment boom could unsettle financial markets if mounting debt and expectations of future earnings outstrip the technology’s ability to deliver productivity gains.

IMF managing director Kristalina Georgieva said AI spending was already stimulating economic activity, particularly in the United States and Asian economies producing technology hardware. However, the financial risks accompanying that expansion were also growing.

In an article published on Thursday, Georgieva said the scale of investment in AI infrastructure could ultimately surpass spending on transformative developments such as railways, electricity networks and the internet.

For now, expenditure on data centres, computing systems and supporting infrastructure is creating demand. The concern, she said, is whether the commercial returns will justify the money being committed.

Large technology companies are increasingly turning to debt markets to fund their AI ambitions. Their share of investment-grade bond issuance linked to AI infrastructure financing has risen from below 1 per cent to around 10 per cent over the past two years, according to Georgieva.

The industry’s concentration and overlapping financial relationships add to the vulnerability. Major technology companies invest in AI developers, which then buy computing services from those same companies. If developers fail to generate expected revenues, the consequences could affect several connected businesses.

Disappointing earnings could weaken investor confidence and drive down technology valuations. Cyberattacks or failures involving powerful AI systems could create further uncertainty.

In a severe downturn, losses could spread through the AI sector’s financing networks to investors and financial institutions elsewhere. International ownership of AI-related assets could also transmit the shock across borders.

Despite these risks, Georgieva said AI offered substantial economic promise. The technology could lift productivity and add around half a percentage point to annual global growth over the coming decade.

Realising those gains, however, would require companies to rethink their products, processes and ways of working. Simply adding AI tools to existing operations would not necessarily produce an immediate productivity boost.

The IMF also highlighted the potential disruption to employment. Its research estimates that about 40 per cent of jobs globally are exposed to AI, rising to roughly 60 per cent in advanced economies.

That exposure does not automatically translate into redundancies. AI could help some workers become more productive, while reducing demand for other roles or changing the skills employers require. The Fund said there was no clear evidence yet of a broad employment impact, although work was already being reshaped.

Georgieva urged governments and regulators to strengthen financial supervision, monitor concentrated investments and improve protection against cyber threats.

Central banks would need to assess AI’s effects on productivity, inflation and economic activity. Governments, meanwhile, should prepare for possible shifts in labour income, tax receipts and inequality as adoption expands.

With IANS inputs