China’s artificial intelligence push is poised to have a broadly positive impact on the global economy, according to Deutsche Bank analyst George Saravelos. The emergence of cheaper AI technology will lead to faster productivity gains, higher growth and lower inflation, Saravelos said.
The benefits of AI will disseminate to the global economy at a faster pace and larger scale, ultimately allowing for faster productivity gains. This translates to higher growth but less inflation, which is positive for bond and equity markets at the same time. A marginal dollar negative impact is also possible due to reduced US technological advantage.
In the short term, Saravelos draws parallels with the DotCom unwind of the 2000s, which led to a large equity sell-off, a mild recession and a dovish Fed. This scenario could play out again, with an initially mixed reaction to the USD followed by a weaker dollar.
The implications for the US are significant, with Saravelos predicting increased odds of aggressive fiscal easing under a new administration. A more aggressive containment policy towards China is also possible, while the likelihood of a non-China tariff policy may decrease.