Artificial intelligence could deliver a booster shot to the global economy that faces the challenges of deglobalisation, turbulent geopolitics, and high capital costs, and the risk of policy reversal in the US after the presidential elections, according to global industry leaders.
The world economy will avert a recession and get a boost from AI and other technologies that would spur productivity and lessen the cost of production, said Nouriel Roubini, Professor Emeritus, Stern School of Business, New York University.
“It’s a tug of war between technology leading us in the right direction and lots of other things leading us to negative aggregate supply shocks,” said Roubini. “I think that over the medium term, technology is going to dominate. But in the short run, those stagflationary forces may be more dominant.”
Roubini believes that the US stock market is unlikely to see more than 10% correction. “But to get the real bear market in the US public market, we need a recession. And for now, the recession would not be my baseline,” he said. “Given the disruption that AI is going to provide, there are some scenarios where US potential growth by the end of this decade could be above 3% as opposed to the current 1.8%,” he added.
He was speaking during a panel discussion on ‘Navigating The New Normal: Doing Business in Rising Uncertainty’ on Saturday.
The world of business is learning ways to capture value from AI, said Rich Lesser, Global Chair, BCG. “Companies want to pick a few areas where the impact of AI can be deeper rather than peanut buttering,” said Lesser.
“The people part of it is extremely challenging. The AI that we’ve been doing with for the last eight years may have touched 5% of the workforce in an organisation. These technologies can touch 50% of the organisation,” he said.
Focusing on the US polls and its impact, Ritu Arora, CEO & CIO (Asia Pacific), Allianz Investment Management said the elections will have a major bearing on the capital markets.
“We are with great anticipation looking at how the US chooses their leader, and I think that will have a significant impact not just on the US economy and capital market but on the global economy. It will have an impact on the trade flows,” she said.
Arora said it was “heartening” to see strong retail participation in the Indian stock market, which has helped counter the influence of foreign institutional investors. She, however, cautioned that “a bit of froth” has been created in IPOs and small caps, and termed it as a cause for worry.
According to Arora, if there’s any fall out due to the US elections or geopolitical stress, “we might see retail investors impacted and hurt in the bargain because they are significantly invested in small caps.”
Institutional flows into India have risen sharply partly due to stress in China, said Arora. “China remains under stress, and India is structurally well poised to benefit from that stress China is witnessing,” she said. “We have all the fundamentals in place, structurally strong, economy doing well, resilient. China’s loss, as is often said, could be India’ gain.”
The world needs close cooperation to meet climate goals, said Marc-Andre Blanchard, Head, CDPQ International and global head of sustainability. Both the Global North and the Global South will have to transition, and funding will be crucial to achieve that, he said, adding that the global atmosphere has become less conducive for this change.
“We did not succeed in doing this when inflation was low, and the interest rates were low and when the geopolitics was a bit calmer. And now we need to do it in a very different context, and last year was the proof that it’s so difficult,” said Blanchard.
The positive, however, is that the private sector has now got deeply involved and the discussions on sustainability at global forums have moved from ‘what’ to ‘how’, he added.
Roubini also warned of the many risks to the global economy.
“We have a process of excessive deglobalisation that is leading to protectionism and is going to fragment the global economy. We have a geopolitical depression,” he said, adding that countries are prioritising economic security over economic efficiency. He also warned of the “moral hazards” due to regular interventions by the US government and the US Federal Reserve in case of financial troubles.
