The Bank for International Settlements is warning central banks and governments that the AI investment boom, high public debt and fragile financial markets are combining into a risk to the global economy, according to its Annual Economic Report published over the weekend. Annual Economic Report
Where the strain shows up The BIS said inflation expectations could become entrenched if supply disruptions recur, and it flagged elevated asset valuations and investor complacency in core bond markets. The report also described how financing for the AI surge increasingly depends on debt and complex funding across tech supply chains, and that large non-bank investors now amplify sovereign market risks.
The bank gave a name to that link: a new "sovereign-financial stability nexus," where record public debt and heavy non-bank financing could make sovereign bond values swing more sharply, which in turn could tighten financial conditions quickly. BIS officials stressed the urgency of bringing down debt and widening oversight beyond traditional banks.
On the industry side, the BIS and other reporting pointed to the scale of AI spending at the center of the boom. The five biggest cloud and infrastructure providers are on track to commit AI capex of $1 trillion in 2025 and 2026. The report warned that fierce competition, supply bottlenecks and job concerns make the current investment surge vulnerable to overinvestment and a possible sharp reversal.
Policymakers were given a concrete short list: prioritize price stability, restore fiscal sustainability, strengthen oversight of non-bank finance and push structural reforms. The BIS left one clear unresolved condition, high public debt financed through non-bank intermediaries remains a central bottleneck for the financial system and policy-makers' ability to respond.