The Bank for International Settlements issued a stark warning in its annual report that artificial-intelligence bust risks, inflation and fiscal stress pose major threats to global prosperity. Officials flagged these as pressure points demanding urgent attention, with underlying financial vulnerabilities that could amplify economic shocks.

AI-specific concerns center on financing structures that could unravel quickly. Disappointment in returns might trigger sudden capital pullbacks, turning the current capex boom into a prolonged investment bust. Complex arrangements like circular financing deals between chipmakers, hyperscalers and AI labs often lack transparency, with the same assets potentially pledged multiple times.

Beyond AI, the BIS warned that inflation risks persist despite easing Middle East tensions. Oil prices fell below pre-conflict levels, but officials caution that energy supply disruptions and infrastructure rebuilding could sustain price pressures. Recent US data showed inflation rising at its fastest pace in over three years.

Fiscal dangers from high sovereign debt levels add to the concerns, particularly as leveraged hedge funds dominate government bond markets. These investors employ strategies reliant on short-term financing that can spark fire sales and feedback loops. The BIS emphasized that disciplined fiscal policy, robust regulation and credible monetary policy work together to anchor stability.