AI's rapid rise is creating new financial stability risks, Bank for International Settlements (BIS) head Pablo Hernandez de Cos said. Spending on AI infrastructure is substantial, already influencing global economic conditions. While AI does not change monetary policy mandates, it complicates economic interpretation by affecting demand, supply, and financial markets simultaneously.
The BIS estimates that the world's five largest technology firms will invest over $1 trillion in AI between 2025 and 2026, with global AI investment projected to grow from about $500 billion to $4 trillion by 2030. Hernandez de Cos emphasized that AI's long-term impact depends on policy choices, investment in skills and infrastructure, and the equitable sharing of benefits. He noted that AI financing is increasingly reliant on debt and private credit rather than corporate earnings, requiring scrutiny due to opaque and interconnected funding structures.
AI is reshaping global trade flows, benefiting economies tied to the technology supply chain, such as South Korea, Singapore, Malaysia, and Taiwan, through higher export prices for AI chips and equipment. Studies indicate generative AI can boost productivity by 10% to 65% in specific tasks, particularly in coding, consulting, and professional writing. However, the broader economic impact on productivity growth remains uncertain, with estimates suggesting AI could raise total factor productivity by half a percentage point annually, depending on adoption rates and resource allocation.
Advanced economies are expected to lead in benefits due to their service sectors and AI readiness, while emerging economies like India face varied prospects but have a potential opportunity to narrow productivity gaps through digital public infrastructure. Hernandez de Cos warned that while AI enhances productivity, it may also displace routine cognitive tasks in roles like customer service, programming, and administration, necessitating retraining and reskilling. He also highlighted risks from lofty valuations, market concentration, and opaque financing structures if corporate profits fall short.
Hernandez de Cos cautioned that the scale and speed of current AI investment warrant caution, drawing parallels with past economic booms like railway expansion and the dotcom surge.
Source: Euronext Markets: Real-time Stock Market Data | live
