AI-Led Shock Could Be Worse Than 2008 Global Financial Crisis, Warns Economic Survey

The Economic Survey 2025–26 has flagged growing financial risks linked to the rapid and highly leveraged expansion of artificial intelligence infrastructure, warning that a disorderly correction could trigger a systemic global shock with macroeconomic consequences worse than the 2008 financial crisis.

The warning appears in the Survey’s assessment of global economic scenarios for 2026, which describes an international environment marked by geopolitical tensions, policy uncertainty, and rising financial fragility.

“Financial vulnerabilities associated with leveraged technology investments are looming,” the Survey states, adding that global markets are operating in an environment that is “less coordinated, more risk-averse, and more exposed to non-linear outcomes with a narrower margin of safety.”

AI Investments and Balance-Sheet Risks

The Survey draws attention to the way large technology firms are financing AI expansion, particularly data centre investments.

It notes that over $120 billion of data centre spending has been moved off corporate balance sheets through special purpose vehicles funded by global investors, raising concerns about the financial sustainability of the current pace of AI investment.

The document also highlights growing doubts around the economics of large-scale AI models, observing that the CEO of IBM publicly questioned the commercial viability of Large Language Model-based AI, reinforcing concerns around the scale of financial risk involved.

“Given the leverage involved, a correction could have cascading effects across financial markets and the real economy,” the Survey cautions.

Market Stress

The AI warning is set against a backdrop of heightened global uncertainty and thinning safety margins. The Survey points out that financial markets are already reflecting this fragility.

Gold prices, it notes, rose from USD 2,607 to USD 4,315 per ounce during 2025, signalling rising geopolitical and financial tail risks. As of January 26, 2026, gold prices had climbed further to USD 5,101.34 per ounce.

The Survey also flags the sharp rise in Japanese government bond yields as an early signal of stress in global financial conditions.

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A Shock Cascade

In its most severe global scenario, assigned a 10–20% probability, the Survey warns of a shock cascade where financial, technological, and geopolitical stresses reinforce each other.

It states that the current phase of AI expansion has exposed business models dependent on optimistic execution timelines, narrow customer concentration, and long-duration capital commitments.

While a correction would not halt technological progress, the Survey warns that it could sharply tighten financial conditions and spill over into broader capital markets.

If such a correction were to coincide with geopolitical escalation or trade disruptions, the Survey says the outcome could include a contraction in global liquidity, weakened capital flows, and a shift toward defensive economic responses across regions.

In such a scenario, it concludes, “the macroeconomic consequences could be worse than those of the 2008 global financial crisis.”

India Better Placed, But Not Immune

The Survey notes that India is relatively better positioned than many economies due to its large domestic market, strong foreign exchange reserves, and less financialised growth model. However, it stresses that these strengths do not amount to insulation.

Across all global scenarios, a key risk for India remains disruption of capital flows and its impact on the rupee, with the difference lying only in scale and duration.

The Survey concludes that the external environment in 2026 will require policy credibility, predictability, and preparedness, describing the recommended stance as one of “strategic sobriety rather than defensive pessimism.”

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