Formula 1 heads back to Africa

Luke Wilson (0:00)

The AI boom is propping up the global economy, but for how much longer? It's World Business Express from the BBC World Service. I'm Luke Wilson. Earning season gets underway with results from some of America's biggest banks, and Rwanda is set to welcome Africa's first Formula One race in more than three decades.

Once again, investors are signaling that they're worried about the scale of investment in artificial intelligence.

SPEAKER_2 (0:31)

Asian stocks set to decline as a sell-off and shipmakers wade on sentiment ahead of earnings season.

Fiona Sincotta (0:36)

Stocks are sliding around the world as investors pull back from some of the biggest names in tech.

SPEAKER_4 (0:40)

The market was asleep yesterday. It's woken up now, and Asian tech is having a really bad day after Broadcom CEO warns investors are just gambling in a casino.

Luke Wilson (0:50)

Just some of the reaction to markets over the last 24 hours there. Fiona Sincotta is Senior Market Analyst at Stonex. Fiona, talk us through this. Why are we seeing another sell off of tech stocks?

Fiona Sincotta (1:03)

So basically, investors have worried again after Chinese chip maker CXMT announced significant progress on a chip architecture, which the markets now worry could intensify competition among semiconductor and memory chip companies. And this again has sort of prompted those questions then, you know, over whether huge spending in AI infrastructure will actually generate sufficient returns.

It's prompted a lot of profit taking, you know, we saw SK Hynex down 10% in Seoul, Samsung fell 7%, Nvidia, Micron, they're all trading lower today.

Luke Wilson (1:38)

This all comes as the International Monetary Fund says the world economy has shown resilience this year due to strong investment in AI offsetting the energy shock from the war in the Middle East. In its latest global forecast, the IMF has reversed the downgrades given to many major economies at the start of the Iran War and now forecasts a slight improvement in global growth. The BBC's economics editor Faisal Islam is in Bangkok where the IMF is meeting.

Faisal Islam (2:04)

This is a report for fans of nuance and balance. There's a lot of understandable doom mongery about the world economy given the fact we had a massive trade shock, a massive energy shock at the same time.

But I think the backdrop here is you had those two negative shocks at the same time as a significant positive shock, which is massive investment in AI.

And to some degree, they have balanced each other off more than expected. So both the negative shocks, the world has been more flexible in coping with them. The energy has found other routes, not completely making up for the blockade in the Strait of Hormuz, but somewhat more than you'd have expected. The trade has found other routes. So the US and China has seen a fall in the mutual trade, but both of the world's top two economies have increased substantially their trade with third countries. So that has been a diversion of sorts. And then despite the negative of both of those two factors, you're seeing this AI boom, frankly, staggering amounts of investment help support the world economy in patches. So this mainly centered around, of course, the USA, where I am right now in Asia, the UK has benefited too. So it's a kind of sort of global seesaw balancing act, which has meant that the global economy, the downgrades, some of the downgrades penciled in quite understandably six months ago, some of those have been reversed. I'd say less pessimism, perhaps even more optimism than you would have expected given the shocks.

Luke Wilson (3:33)

But the IMF's chief economist, Silvana Tenreiro, says that resilience is reaching its limit.

Silvana Tenreiro (3:39)

This confluence of risks calls for decisive action.

Fiscal policy must be restrained to contain demand pressures at a time of highly inflationary risks. Countries with high debts and deficits need to initiate a fiscal consolidation and make sure that deficits and ultimately debt are on a downward trajectory.

Luke Wilson (4:00)

Well, Fiona Sincotta from Stonex is still with me. Fiona, why is Silvana Tenere worried about deficit levels, debt levels in countries?

Fiona Sincotta (4:09)

So basically global government debt is at the highest that it's been since the aftermath of World War II. So it's at 95% of global GDP in 2026, predicted to hit 100% by 2029 And this is basically a problem because we are in a higher bond yield environment. And this means that governments are spending more on debt repayment, which means that there's less left over for public services. And at the same time, we've got sort of rising energy costs, geopolitical tensions, which are adding pressure. So even small market shocks could actually push yields higher and trigger financial instability.