Bank for International Settlements Warns AI Boom Risks Global Recession

The Bank for International Settlements warned in its annual report that the current global artificial intelligence investment boom risks creating systemic financial vulnerabilities that could lead to an international recession. Comparing the current era of AI exuberance to previous economic manias like the dotcom bubble, the institution cautioned that a failure to deliver financial returns on massive infrastructure projects could trigger a protracted investment bust.

Five major US hyperscalers, including Microsoft, Meta, and Amazon, are projected to spend over $1 trillion on AI-related capital expenditure across 2025 and 2026. This surge in spending has contributed to stretched asset valuations and increased leverage throughout the AI supply chain. Similar investment spikes are appearing globally, with data center growth in Victoria and New South Wales, Australia, potentially surpassing the scale of the mid-2010s mining boom.

Beyond financial stability, the report highlighted labor and security risks. The institution noted that AI competes directly with human cognitive abilities, which may displace middle-class jobs and limit workers' ability to move up the value chain. While frontier AI models could enhance cyber defenses, they may also scale the complexity of cyber-attacks. The report also linked semiconductor demand to inflationary pressures, noting that companies like Apple have raised prices for hardware, potentially forcing central banks to maintain high interest rates.