Valuations of AI companies have reached astronomical levels, raising fears of an upcoming correction. The International Monetary Fund and central banks are already preparing for more difficult times. Although the risk of a widespread financial crisis currently appears limited, The Economist emphasizes that it would be wrong to assume that the crash will only affect investors.
The British weekly indicates that the long-term investment boom leads to increasingly less transparent financing methods. Even if “financial Armageddon” does not occur, sharp declines in stock markets could trigger a global recession. The decline in demand in the US would be particularly severe, where the crisis could impoverish households by 8%, which would impact consumption and economic growth. Additionally, difficulties in the labor market could deepen economic problems.
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Europe, whose economy is already struggling with slow growth, and China, which is struggling with overproduction, would also feel the effects of such changes. The British weekly notes that in the case of China, the decline in demand in the US could prompt Beijing to intensify its attempts to place its goods on the European market. Such a scenario could trigger protectionist actions from Europe.
“The Economist” draws attention to the additional risk for the US related to President Donald Trump's policy. A tariff war with China and the possibility of the Federal Reserve becoming susceptible to political pressure could weaken the dollar's position and undermine the United States' status as an economic leader.
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In the face of a potential crisis, indebted countries would come under pressure, and a global recession could shake the foundations of international markets. “The Economist” warns that Wall Street faces a “doomsday”, reminding that speculation about a bubble burst often appears just before its collapse.
