Mahmood Pradhan

Amundi economist says macroeconomic impact of AI will take longer to move the productivity needle

Global growth has been on a secular decline since around 2000, with a more pronounced decline following the Global Financial Crisis (GFC). Economists typically cite the sizeable and broad-based slowdown in Total Factor Productivity Growth (TFP) which measures how efficiently labour and capital inputs are used to produce output.

Mahmood Pradhan, head of global macro economics at the Amundi Investment Institute, covers the following points in a recently published thematic paper:

• The long-term outlook for global growth is not promising, largely determined by declining working-age populations and weak investment.
• The secular decline in productivity growth, especially in advanced economies is unlikely to improve in the near term.
• Artificial Intelligence is promising, but its macroeconomic impact will take longer to move the productivity needle.
• Investment in AI-related companies will continue at a healthy pace, which should support AI-related equities as an expanding sector.

He notes “Looking back over longer periods, there were strong advances in productivity after WW2 in the advanced economies and in some of the larger emerging market countries in the 1970s to the 90s, partly because they were starting from relatively low levels of per capita incomes. But since around 2000, the slowdown has been broad-based.

“If these trends continue, global growth over the next decade would likely be sub-3%, compared to just under 4% in the two decades before the pandemic. And that’s before we consider some of the more recent adverse developments, such as global economic fragmentation, increasing security concerns and the transition to net zero.

“Such a subdued growth environment would make it even more difficult to deal with high levels of public and private debt in many countries, increasing inequality and would exacerbate strains on already stretched public finances.

“With no near-term macro impacts from AI as yet, the trend of a secular decline in productivity growth of the last two decades will continue to be determined by demographics (declining working-age population) and weak investment. And these will be the main determinants of the relatively subdued growth outlook over the medium term. Investment in AI-related companies will continue at a healthy pace given the longer-term promise of this technology.

“As a result, we believe the near-term investment implications are primarily for AI-related equities, which is an expanding sector.”

Read the paper.

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