Moody's in its Global Macro Outlook mentioned that technology is advancing rapidly, with breakthroughs in AI, quantum computing, biotech, robotics and other fields each offering the potential for growth-fueling productivity gains over the next decade. Widespread adoption of these innovations ' especially through open-source platforms ' could result in benefits across both advanced and emerging markets. However, these developments also carry risks, it said. In particular, AI could render entire sectors and jobs obsolete, which could lead to higher long-term unemployment and associated economic and fiscal cost, if not actively managed.

The ratings agency further added that high expected earnings growth on the promise of AI and other technological advances is fueling an equity market boom and substantial capital investment. Regulatory changes could further juice up equities and other asset classes for some time, but they also carry seeds of financial instability. Arguably, valuations are already rich across much of the tech industry, where only a few companies can ultimately rise to the top, it noted. A long and bubbly credit boom will inadvertently increase leverage as well as distort market prices. If returns were to disappoint, it would cause an equity market sell-off similar to the dot-com bubble, but potentially larger in scale with wider global consequences given international exposure to US assets. Such an event will also sharply cut business investment and employment, precipitating a downturn, Moody's further noted.

Powered by Commodity Insights