Singapore’s MAS Flags AI Pullback as Threat to Global Markets

itdlmigo)[vur97][db2e(ap_media_dl_1.png Monetary Authority of Singapore

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(Bloomberg) — Singapore’s central bank warned that uncertainty over sustaining massive AI investments is a key risk for global growth and financial markets, citing this along with the threat of a prolonged re-escalation of the war in the Middle East.

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A surge in investment in data centers, chips and computing infrastructure and semiconductor capacity has boosted global economic growth, which has stayed resilient despite repeated shocks from higher tariffs to the war, said Chia Der Jiun, managing director of the Monetary Authority of Singapore. There are significant implications whether the AI boom continues or if there is a major curtailment in funding in this area, Chia said in remarks that accompanied the MAS’ release of its annual report. 

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A big pullback is likely to sharply weaken economic expansion around the world, Chia said. Financial stability risks could also come about through the equity, credit and loan markets’ exposure to unsustainable business models with deteriorating cashflows and weak credit terms in complex financing structures, he added. Conversely, a long AI boom will affect income, demand and inflation, he said.  

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“Global growth, investment and financial market performance have become highly dependent on projections of large and increasing investment in data centers and semiconductor chips continuing well into the future,” Chia said, pointing out this is particularly so in the US capital markets and semiconductor-exporting Asian economies. 

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Singapore’s central bank joins authorities around the world who are increasingly alert to the risks posed by the rush to AI. Bank of England Governor Andrew Bailey warned the fallout from an AI stocks bubble bursting would reach the UK economy and could prompt a response in interest rates. 

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The Bank for International Settlements, an umbrella group for the world’s central banks, cautioned that the AI investment race could turn a debt-fueled boom to bust. Still, Federal Reserve Chairman Kevin Warsh has pushed back on commentary that surging investment into AI is stoking inflation, saying the boom won’t necessarily lead to persistent price pressures. 

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Meanwhile, stocks tumbled this week on investor worries over crowded equity positioning, lofty valuations and rising corporate debt levels in the AI sector, underscoring how quickly sentiment can turn for the worse. 

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Financial markets will be focusing on commercial revenue growth to justify financing risks, MAS’ Chia said in his remarks. He cited the escalating costs of energy and chips, supply bottlenecks of raw materials, regulatory uncertainty, intense competition among model providers, including from lower-cost open-weight models, as well as how widely shared the benefits of productivity gains are as “clear risks” for AI investment monetization. 

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Markets have been working relatively well in pricing some of the credit risks, though more transparency would be “very helpful,” Chia said at a briefing in response to a query about potential systemic risks that could happen if the AI boom fizzles out. 

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“It’s probably premature to conclude that the extension of financing is going to result in a huge financial stability event,” he said. “If it continues for a few more years and there is more financing flowing into opaque and less well-structured vehicles, then I think that the risk increases by the day.”