Central bank governors and economists from major economies clashed over the impact artificial intelligence (AI) will have on the global economy. While some expressed hope that AI will boost productivity and become a new engine of growth, others voiced considerable concern over side effects such as asset bubbles, financial system instability, and shrinking employment.
According to the Wall Street Journal (WSJ), AI's economic ripple effects emerged as the top topic at the European Central Bank (ECB) annual symposium held in Sintra, Portugal, on Tuesday.
The economists in attendance largely agreed that AI has the potential to boost productivity and fundamentally reshape the global economy. Kevin Warsh, chair of the U.S. Federal Reserve (Fed), said, "I think we're at the bottom of the first inning or the top of the second of this revolution," adding, "I expect greater prosperity ahead." He continued, "If you're asking me to speak like a pessimist, unfortunately, that's not my position," projecting that AI would simultaneously lift productivity and economic growth.
By contrast, there were substantial warnings that the AI investment frenzy could become a new risk factor for financial markets and the real economy. This is because, as AI hyperscalers (operators of massive data centers) raise ever-larger amounts of funding, investors' leveraged investment is also rapidly increasing. Some analysts also suggested that if AI replaces jobs, downward pressure on the economy could intensify.
Tobias Adrian, director of the International Monetary Fund's (IMF) Monetary and Capital Markets Department, said, "What worries me most is that the borrowers have leverage, and the investors have leverage." He added, "Leverage expanding on both sides is very concerning from a financial stability standpoint."
There were also cautionary voices about the high valuations of AI companies. Tiff Macklem, governor of the Bank of Canada, said, "We've seen this situation every time a new innovative technology emerges." He noted, "The internet proved to be a far better technology than anyone expected, but along the way, the dot-com bubble still occurred." He added, "That doesn't mean there's no chance the market could get too far ahead of itself for a while."
Torsten Slok, chief economist at Apollo Global Management, pointed out that AI could burden the economy whether it succeeds or fails. His explanation was that if AI advances rapidly, it could trigger a recession through job losses and shrinking consumption, while in the opposite case, massive AI investments failing to generate sufficient returns could also come back to weigh on the economy.
Cybersecurity risks also emerged as a point of interest. Sarah Breeden, deputy governor of the Bank of England (BOE), highlighted that Anthropic's latest model and China's high-performance AIs can sophisticatedly identify security vulnerabilities in corporate systems. However, she pointed out that not all companies can make use of this, and that patching vulnerabilities could take considerable time. She warned, "AI is finding numerous security vulnerabilities that we must fix," and "Even if security patches are distributed, if they are not applied quickly, malicious actors can reverse-engineer them and exploit the vulnerabilities."
Isabel Schnabel, member of the ECB Executive Board, expressed concern that security risks could spread across the entire financial system. She said, "It's entirely conceivable that a single cyberattack targeting a large cloud service provider could paralyze numerous financial institutions simultaneously."
