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TIME TO SOBER UP ON AI - BARCLAYS

OpenAI CEO Sam Altman said earlier this year that artificial intelligence will create a world of "incredible material abundance" but Barclays economists have issued a more sobering outlook what the new technology will contribute to the global economy and markets.

AI-related spending added about a percentage point to U.S. growth in the first half of this year, yet Barclays reckon frequent discussion of this eye catching statistic are overstating what it means for the future.

"Most of the impetus to aggregate demand growth from this spending is already behind us," the Barclays team led by Jonathan Millar write:

"Permanently boosting productivity growth by 1 pp would require the entire future trajectory of business fixed investment to be lifted by about 20%."

Barclays also points out that while growth in spending on AI infrastructure could rise by 30% by 2027 this is a big slowdown from the near-tripling of investment by the largest so-called hyperscalers of the last two years.

They add:

"If the growth in capex for the overall AI industry resembles this group — which strikes us as a reasonable assumption — then deceleration lies ahead."

And while many companies' share prices are getting a boost from the idea that AI will improve labour productivity by replacing costly economic inputs, like finance workers, Barclays isn't so sure here either.

However...

"The historical record suggests that it is difficult to summon such (productivity) gains, even when innovation seems to be at a high rate."

Barclays recalls the 1980s, when productivity growth remained weak despite huge investments in computing.

For balance, we asked ChatGPT for comment. It told us that if we do experience another productivity paradox that will be our own fault.

"Broad productivity gains could take time until firms rework workflows, skills, and incentives — then benefits may show up in the macro data."

(Naomi Rovnick)

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