Central Bank Warns of Intensified Global Risks to Irish Economy from War, AI

The Central Bank of Ireland reports that global risks to the Irish economy, stemming from the ongoing war in Iran and artificial intelligence (AI), have intensified. Its Financial Stability Review highlights the threat of a «persistent global energy supply shock triggered by the conflict in the Middle East», warning that continued or intensified conflict will increase inflation, slow growth, and raise costs for households and businesses.

Governor Gabriel Makhlouf noted Ireland's financial resilience but stressed its vulnerability due to reliance on imported energy and international trade. He expressed concern over geopolitical risks, stating, «Things have intensified, and it’s not obvious today that there’s a path to returning all of that to some sort of normality.» The review also pointed out that while government finances are strong, a reliance on corporation tax receipts for budget surpluses creates underlying vulnerabilities, projecting a deficit without them.

Beyond the war, the review raised concerns about global financial stability due to increasing debt and circular deals funding large AI investment plans. Risks could materialize if AI either exceeds or disappoints expectations, with rapid success potentially disrupting sectors like software. AI capital expenditures are increasingly debt-financed, making them vulnerable to rising interest rates. Publicly traded debt by major AI companies is projected to rise from under €40 billion annually (2020-2024) to nearly €100 billion in 2025, with Q1 2024 debt finance already exceeding the entire previous year. This debt increasingly involves private credit and non-bank lending. Cyber risks are also escalating due to geopolitical tensions and AI advancements, necessitating stronger operational resilience.