IMF warns AI boom could spark market turmoil

Washington, October 16 (IANS) The International Monetary Fund has warned that the rapid expansion of artificial intelligence could trigger financial market instability if soaring investment, rising corporate borrowing and expectations of future profits run ahead of actual productivity gains.IMF Managing Director Kristalina Georgieva said the AI boom was already supporting economic growth, particularly in the United States and Asian economies supplying technology hardware, but cautioned that financial risks were building alongside its potential benefits.In an article published on Thursday, Georgieva said investment in artificial intelligence infrastructure could eventually exceed the enormous sums spent developing railways, electricity networks and the internet.The immediate impact has been positive, with spending on data centres, computing infrastructure and related technologies generating additional demand across several economies.However, the IMF chief warned that the financial structures supporting this expansion could become vulnerable if expectations about AI profitability prove overly optimistic.A particular concern is the increasing reliance of major technology companies on debt markets to finance their investments.According to Georgieva, the share of investment-grade bond issuance accounted for by large technology companies financing AI infrastructure has increased more than tenfold over the past two years, rising from less than one per cent to approximately 10 per cent.She also pointed to the concentrated nature of the industry and the increasingly interconnected relationships between major technology companies and AI developers.Large technology firms are investing in advanced AI laboratories, which in turn purchase computing capacity from the same companies.Such arrangements could amplify financial stress if the anticipated commercial returns fail to materialise.The IMF warned that disappointing revenues or earnings from AI developers could undermine investor confidence and trigger declines in technology company valuations.Cybersecurity incidents or failures involving increasingly powerful AI systems could create additional uncertainty.In a severe scenario, a market correction could spread through the heavily financed and interconnected AI ecosystem, affecting financial institutions and investors beyond the technology sector.Because AI-related financial assets are held internationally, losses originating in one market could spread across national borders.The IMF chief nevertheless emphasised that artificial intelligence offers considerable long-term economic benefits.The technology could increase global productivity and potentially add about half a percentage point to annual economic growth over the coming decade.But Georgieva cautioned that such gains would take time to emerge, requiring businesses to redesign products, processes and working methods rather than simply introduce new technology into existing operations.The IMF also identified potential consequences for employment.Its research suggests that approximately 40 per cent of jobs worldwide are exposed to artificial intelligence, with the proportion rising to about 60 per cent in advanced economies.Exposure does not necessarily mean job losses. Some occupations could benefit from AI-assisted productivity, while others may experience reduced demand or substantial changes in required skills.The IMF said there was not yet clear evidence of a broad employment impact, although the nature of work was already changing.Georgieva urged governments and financial regulators to strengthen safeguards against emerging risks.She called for effective supervision of financial institutions, closer monitoring of concentrated investments and stronger protection against cyberattacks.Central banks would also need to assess how artificial intelligence affects inflation, productivity and economic activity.The IMF warned that governments must prepare for possible changes in tax revenues, labour income and inequality as the technology becomes more widely adopted.Artificial intelligence has become a major driver of investment in the United States, with leading technology companies expanding expenditure on data centres, advanced computing systems and the electricity infrastructure needed to support them.