Stocks will tumble much further as AI investment will slow next year then fall in 2028 and drag GDP down too, economist predicts
Taiwan’s real GDP growth next year should be around 3 percentage points lower, and South Korea’s should be 1 point lower, with a further drag in 2028.
Key points
- The market’s rally over the past year lifted GDP by around 0.4%, according to Redwood, so a stock selloff should produce an economic drag of similar scale.
- GDP growth last year, a capex slowdown should trim that much from its recent growth rate, Redwood estimated, and a 10% capex drop might take 0.1% off GDP.
- Investors have already taken a severe beating recently, but there’s much more stock market carnage in store as the AI investment boom wanes, according to Capital Economics.
As a result, she thinks investment will continue to rise next year but at a slower pace—then fall outright in 2028 by around 10%.
Despite the warnings about capex, GDP and stocks, AI will continue to work its way into the economy and improve productivity, helped by the infrastructure that’s already been built and the new investment that’s on the way, albeit at a slower rate.
Additional details
- “Rather, we expect investment to adjust to a more sustainable pace, with sufficient capacity still being added to support further growth in AI usage,” she concluded.
- In a note on Friday, Chief Economic Adviser Vicky Redwood said AI still has potential to boost productivity but is bearish about the amount of revenue that can be generated to sustain the rate of investment.
- “A tightening of financial conditions driven by factors such as higher energy prices or term premia could also make financing investment hard.” Lower stock prices will also feed into the economy via the wealth effect, which fuels consumer spending.
- However, a fall in capital spending alone has generally not been sufficient to cause a recession.” At the same time, AI adoption should continue to expand, boosting productivity and supporting output growth.
- While that’s possible, it implies a much more severe and rapid disruption to the economy than currently seen, such major displacement of existing businesses and labor.
How this summary was made: extractive summary — built from the sources' own reporting. It is drawn only from the reporting of the sources listed below — read the originals for full detail. How we summarize →
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