AI bubble or boom on the radar for economists as International Monetary Fund keeps an eye on tech

A tech wreck sparked by over-exuberance for artificial intelligence is among the top threats to an otherwise “resilient” world economy in the year ahead, according to the International Monetary Fund.

The IMF predicts global growth of 3.3 per cent in 2026, steady from 2025 and revised up by 0.2 percentage points compared to the forecast of three months ago.

Australia’s economy was tipped to expand a modest 2.1 per cent — but the agency’s experts warn Down Under will “see some drawn-out persistence in above-target inflation” as the Reserve Bank grapples with rising prices.

Core inflation was 3.2 per cent in the year to November, above the RBA’s target, and data due next week will show whether picture is worsening.

IMF’s latest economic outlook report said the world had “shaken off” last year’s trade war thanks partly to US President Donald Trump watering down his proposed tariffs, easy money, and government stimulus.

Surging investment in the information technology sector — driven by artificial intelligence — had helped keep momentum and was supporting Asian exports.

“While manufacturing activity remains subdued, IT investment as a share of US economic output has surged to the highest level since 2001, providing a major boost to overall business investment and activity,” report authors Tobias Adrian and Pierre-Olivier Gourinchas said.

Yet the impact is uncertain. AI could be a “transformative” boost to productivity and add about 0.3 percentage points to annual growth, the IMF says, or could cause a major correction in equities if the tech fails to deliver.

Optimism about the potential for generative AI products including ChatGPT, Google Gemini and Anthropic’s Claude has pushed share prices dramatically higher across the tech sector.

Stock in graphic computing company Nvidia rocketed more than 10-fold over the past five years due to the technology’s key role in training AI algorithms.

“Favourable financial conditions and robust earnings have supported rising stock prices and helped fund new capital spending,” IMF said.

“But as the expansion accelerates, debt financing is becoming more prevalent, increasing leverage.

“This shift introduces notable risks. Higher leverage could amplify shocks if returns fail to materialise, or if broader financial conditions tighten.”

The IMF estimates the potential over-valuation of stocks will not be quite as bad as before the 2001 dot come bust as the latest boom has more robust earnings.

A worst-case scenario would nontheless mean a sharp drop in tech investment and a “prolonged correction in stock market valuations”.

AMP’s Shane Oliver also highlighted AI as something for investors to watch in the year ahead.

“The surge in AI shares shows some signs of being a bubble, including surging data centre (capital expenditure) increasingly being funded by debt,” he said.

More broadly, valuations were “stretched relative to history” particularly in the US. Yet any bubble may still be nascent, he said.

“Compared to the late 1990’s tech bubble: valuations are cheaper; the Nasdaq is up less; tech sector profits are very strong; bond yields are lower; and its early days in the associated capex build up around data centres,” Dr Oliver said.

The respected economist also sounded the alarm about growing intervention by governments into markets.

“It was evident under Biden with increasing subsidies, and it’s ramped up dramatically under Trump with tariffs a key example along with the US Government buying shares in companies like Intel and charging Nvidia a fee for selling chips to China,” he said.

“Socialism with American characteristics” is becoming more apt.

“In Australia it’s also evident in government moves to prop up failing steel works and aluminium smelters. Ultimately, it will mean a high cost to taxpayers and consumers.”