Overview
- The Bank for International Settlements published its Annual Economic Report on Sunday warning that massive AI-related capital spending, renewed inflation from a Strait of Hormuz supply shock, elevated public debt and expanded non-bank financing together create a fragile macrofinancial backdrop.
- The BIS singled out the five largest hyperscalers as likely to invest more than $1 trillion in 2025–26 and said disappointing returns could trigger a prolonged investment crisis that would spread through credit and equity markets.
- The report flagged global public debt at about 94% of world GDP at end‑2025 as a constraint on fiscal response and said higher, persistent inflation would make it harder for governments to cushion any downturn.
- The BIS warned that much AI financing runs through less‑regulated channels, including hedge funds, private credit and circular financing arrangements between chip makers, cloud providers and AI labs, which raises opacity and contagion risk.
- It urged policymakers to prioritize price stability, rebuild fiscal space, extend regulatory standards to non‑bank entities and design temporary, targeted central‑bank interventions to reduce the chance of a sharp market correction.