AI revolution: productivity boom and beyond
Our Research analysts explore how recent breakthroughs in Artificial Intelligence could provide a boost to productivity, similar to past periods of revolutionary technology change.
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RESEARCH | 3 POINT PERSPECTIVE | MACRO SHIFTS
Q2 2024 Global Outlook: US resilience leads the way
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Major economies have made great progress on inflation, which should continue to trend down in 2024, getting closer to the central banks' 2% target. In the US, our analysts expect core inflation to decrease to 2.5% by the end of the year, while in Europe, it should average 2% even as unemployment rates remain near historic lows. There have been bumps along the way – such as January figures for the US – but the downward trajectory has not changed.
That opens the way for western central banks to start cutting rates in the second half of the year. The US Federal Reserve, the European Central Bank and the Bank of England have not rushed to lower rates because their economies have been more resilient to higher rates than initially expected. But some cuts are in the offing later this year, our analysts estimate.
While the UK and euro area have done well to avoid job losses while bringing inflation down, they part ways with the US on growth. GDP in the former economies has been stagnant, while US growth has remained extremely strong. China's economy has also settled at a much slower rate than in previous decades. In this landscape, our analysts see the US as a stand-out. It will likely maintain its outperformance because it is now a world economic superpower in energy, the most important part of the global financial architecture, and now the world’s preeminent technology superpower. The US is at the forefront of the Artificial Intelligence revolution, which will likely boost capital spending in the near term and productivity in the longer run.
The US engine should help the global economy to grow 2.9% this year, slightly below last year's 3.2%, a very acceptable trough for this business cycle. As China addresses its property market and other structural challenges, India has become Asia's growth engine and will likely continue to play that role for the rest of 2024. The world economy may grow even faster than what our analysts expect if the AI productivity boom happens faster than in previous technology breakthroughs.
Our Research analysts explore how recent breakthroughs in Artificial Intelligence could provide a boost to productivity, similar to past periods of revolutionary technology change.
US economic primacy will likely drive asset allocations in 2024. Our analysts expect the dollar's strength to persist, unusual for the end of a Fed hiking cycle, but supported by the structural features of the US economy, including the AI revolution and energy independence. The recent rally of US mega-cap technology stocks is justified by incredibly strong earnings and rising profit margins. Our analysts expect equities to outperform fixed income assets in the rest of the year as these factors support share prices in the US and elsewhere.
About the experts
Ajay Rajadhyaksha
Global Chairman of Research
Amrut Nashikkar
Managing Director, Fixed Income Strategy