By Chelsey Dulaney

SINTRA, Portugal — One question has dominated the annual gathering of the world's top central bankers and economists: Is artificial intelligence a boon or a threat to the global economy?

Economists at the European Central Bank's symposium have laid out a number of reasons to be worried: rising debt issuance from AI hyperscalers, increasing leverage used by investors to bet on AI and rising unemployment if the technology replaces jobs.

"What worries me the most is there's leverage by the borrowers and there's leverage by the investors," said Tobias Adrian, director of the monetary and capital markets department at the International Monetary Fund. "The leverage on both sides is very worrisome for financial stability."

Global policymakers, academics and investors have been mingling at a five-star resort in Sintra, Portugal, this week for the meeting. Several have joined the chorus of voices warning about the potential global fallout if the AI boom turns to bust. The Bank for International Settlements on Sunday said the AI spending surge risks going into reverse, tipping some economies into recession.

Many economists believe AI has the potential to transform the global economy by bolstering productivity — allowing for faster growth as people work more efficiently.

"We are in the first or second inning of this revolution," said Kevin Warsh, chairman of the Federal Reserve. He said he anticipates greater prosperity, adding, "If you wanted me to sound like a pessimist and a doomer on this, I'm afraid I'm not there."

But stock valuations for AI-linked companies look stretched by historical standards, said Bank of Canada Governor Tiff Macklem, built on optimistic expectations of the huge future profits AI companies will earn.

"We've seen this before when there's a new breakthrough technology. The internet proved to be better than anybody imagined, but we still got the dot-com bubble," he said. "It doesn't mean there can't be a period where the market gets ahead of itself."

Torsten Slok, chief economist at Apollo Global Management, laid out two scenarios for AI adoption, both of which carry risks for the economy. In one, "AI is wildly successful," he said, replacing jobs and driving up unemployment.

"That could generate a very bad scenario because then consumer spending will go down, and therefore ultimately we would likely get a recession," he said.

In the second scenario, the pace of AI adoption disappoints.

"If AI is not going to deliver on all the promises of productivity gains, well then, a lot of the investments that are made today will of course turn out to be more problematic because then they will not be delivering the returns in terms of productivity, profitability," Slok said.

The dominance of AI companies in global investors' portfolios could amplify the fallout. The 10 largest companies in the S&P 500 — mostly tech firms riding the AI wave — now make up about 40% of the index. AI-linked debt accounts for almost half of investment-grade issuance this year, according to Slok, and 87% of all venture capital funding.

The risks that AI models pose to cybersecurity are also a growing concern for the Bank of England's Sarah Breeden. New models such as Anthropic's Mythos and those being developed in China can find cybersecurity bugs in companies' systems. But not all companies have access to those models, and patching them once they are discovered can take time.

"AI is uncovering many vulnerabilities that we need to patch," said Breeden. "If patches are released but not swiftly implemented, malicious actors can reverse engineer the vulnerabilities. "

Isabel Schnabel, member of the ECB's executive board, warned how such a scenario could cripple the financial system.

"It is not hard to imagine a cyberattack on a major cloud provider bringing down many financial institutions at once," she said.

Write to Chelsey Dulaney at chelsey.dulaney@wsj.com