Issue Sticky inflation, stretched AI equity valuations and public debt as macro-financial downside risks

Summary

Beyond trade, KISDI lists a set of macroeconomic and financial risks that could weaken growth. Rigid services prices or a geopolitical shock that drives up commodity prices could keep inflation elevated for longer than expected. In that case central banks might delay rate cuts or maintain a tight stance, which would weigh on activity. Valuations of some assets, including AI-related equities that are at historically high levels, could correct sharply if earnings disappoint or risk appetite shifts, hitting household wealth and consumption. Heavy public debt in a high interest rate setting also threatens fiscal soundness, and rising government bond yields could raise funding costs and tighten financial conditions.