BIS Warns AI Bubble Burst Is Major Threat to Global Economy, Citing Funding Weaknesses

The Bank for International Settlements (BIS) warned on June 28 (local time) that the bursting of an artificial intelligence (AI) bubble, inflation, and financial stress are currently major threats to the global economy.

According to Bloomberg, the BIS stated in its annual report released that day that these three factors contain significant potential financial vulnerabilities that could greatly amplify any shock.

The report was released just before the European Central Bank (ECB) began its three-day annual forum in Sintra, Portugal. It highlighted risks triggered by AI, noting that these dangers could have a destructive impact similar to the 2008 financial crisis.

The BIS pointed out, "Disappointment in (AI-related) returns could trigger a sudden withdrawal of funds and turn the capital expenditure (CAPEX) boom into a long-term investment slump, creating a chain reaction in financial conditions." It added, "Today, corrections in major stock markets could lead to greater macroeconomic consequences than in the past."

Specifically, the BIS noted that there are vulnerabilities in the way the AI industry raises funds, citing circular financing transactions currently used by many AI-related companies as a prime example.

For instance, chip manufacturers and hyperscalers (large-scale data center operators) acquire stakes in AI developers or neo-cloud providers, and in return, these entities commit to purchasing chips or computing power over several years.

This method mixes equity or debt relationships with transactions between suppliers and customers.


Furthermore, the construction of AI data centers is often outsourced to third parties, who then lease the facilities back to hyperscalers through long-term contracts that include exit clauses.

The BIS noted, "The terms of these transactions are often not properly disclosed, and there is a risk that the same asset could be pledged as collateral multiple times."

Meanwhile, Bloomberg noted that the BIS's warning about the potential resurgence of inflation contrasts with some initial optimism that the shock from energy supply shortages caused by the war in Iran would subside.

The analysis suggests that energy supply disruptions may not be over, that rebuilding supply infrastructure will take time, and that the aftermath of the war crisis may persist—a view that aligns with the perspective of the European Central Bank (ECB).

Last week, data in the United States showed that prices rose at their fastest pace in three years, and upcoming inflation indicators for the Eurozone are also expected to remain well above the authorities' 2% target.

In the report, the BIS stated, "The global economy remains trapped in a crosscurrent of progress and risk," adding, "Economic resilience is increasingly being challenged and is in a difficult state."

(Photo: AP, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.