In the latest version of Power and Consequences, we (Gary and Simon) discuss the global economic cycle. Are growth and income still heading in a positive direction or is a worldwide slowdown imminent? Our episode comes in the wake of the IMF-World Bank annual meetings last week in Bangkok. There also have been important recent macroeconomic developments, as well as new data to take into account.
It is striking the extent to which the global economy has become driven by the artificial intelligence boom. We see this in investment data for the United States and elsewhere. We see it now in trade and capital flows between countries.
At the same time, the US-Iran conflict is keeping energy prices high putting pressure on inflation and living standards. The AI investment boom’s demand for chips and electricity also is adding to inflation pressures. We also see interest rates rising almost everywhere and still near-record US equity market valuations.
When people talk about the “affordability crisis” in the US, Europe, and elsewhere, much of this relates to the direct and indirect effects of the high price of oil, the AI boom, and rising interest rates.
At this point, most global indicators still point towards continuing short-term expansion of the AI sector and global economy. In Bangkok, new Federal Reserve Chair Kevin Walsh stressed that he sees AI as expanding the supply of goods and services – meaning that it will increase output without causing inflation.
There are definitely signs, though, of growing economic and financial fragility in the US and global economies’ current dependence on the AI boom. The history of general-purpose technology investment booms and related bull markets are that eventually we experience reversals – with only the timing, depth and reach being uncertain. For more you can watch Gary’s recent talk ‘The AI Trade’.
Could we be facing a potential repeat of the bust after the Internet investment boom of the late 1990s? Or from the housing boom of 2005–8? While all global economic upswings share happy similarities, each global economic downswing is unhappy in its own way.
