World Financial SummitAlerted AI Boom

This year, the annual meeting of the International Monetary Fund (IMF) and the World Bank  titled “World Financial Summit” was held in Bangkok city of Thailand from 12-14 October. Finance ministers and heads of central banks of many countries attended the meeting. Financial leaders who attended the summit expressed cautious optimism about AI-driven economic growth. They opined that enormous investment in AI may be the driving economic growth in the USA for the next decade. They also opined that the Asian economy will also benefit from the impact of AI-driven growth. According to their opinions, there will be substantial export growth for Asian countries to meet the rising demand for computer chips, semiconductors and other necessary components. Their opinion is supported by the recent export growth in Asia. Media reports indicate that the export of South Korea has risen by more than 80%, Taiwan by over 60%, China by more than a third and Japan by more than a fifth compared to last year.

However, some financial experts have expressed opposite views, as they indicated some negative aspects of the AI boom. According to their opinions, Asia’s export growth, as anticipated, is entirely based on AI-related components, where other fundamental sectors are lagging, which is not a good sign. They cautioned that the magnitude of the investment, boom and expansion centring on AI is carrying inherent risk, which may cause severe global consequences if euphoria created over AI ends. Even the IMF has also heralded a warning signal. The IMF has clearly cautioned that only investors will not burn if the AI boom takes a sharp turn. According to their opinion, the world could be looking at a drastic pullback in growth, which would equally affect both rich and poor nations. In fact, the economic prospect and its potential threat over this new technology had dominated the annual gathering of the IMF and the World Bank.

Recently, AI-assisted cyberattacks have created a big menace among the authorities, tech executives, financial leaders and even AI experts. The IMF has also expressed serious concern in this summit about AI-driven cyberattacks. According to the IMF, financial crises may be avoided with precautionary and collective measures, but AI-assisted cyberattacks on banks and financial institutions may expose the global financial system. This threat has been more apparent with the recent hacking incident in one of Korea’s large banks, from where hackers have stolen the personal information of 68,000 customers. In this summit, the IMF has analysed the prospect, growth and threat of AI-related investment from three specific perspectives.

The first perspective is an optimistic scenario where the IMF states that productivity gains from massive AI investment will likely fuel the economic growth and, as such, contain the inflationary pressure. The second perspective is that if AI investment and application move ahead with their promise, but chip manufacturers and other suppliers cannot keep pace with AI, the demand for AI components will significantly rise, causing high inflation and high interest rates in consequence of the mismatch. The third perspective is that if AI investment and growth cannot meet investors’ expectations and AI companies fail to achieve their profit targets, investors may get frustrated, resulting in the fall of investment in the US, suffering export in Asia, plunging stock and weakening the dollar.

In this connection, IMF has indicated their cautionary forecast stating that an AI bust, if it occurs, would cost a 1.3 percentage point fall in global growth in 2028. The IMF further said that confidence in the technology could easily disappear if sophisticated AI programmes are abused in devastating cyberattacks. As reported in the media, IMF Managing Director Kristalina Georgieva has said that some level of upsets seems inevitable, even if the gains from AI ultimately pan out. She further said, “People overestimate the benefits of new technology in the short term while underestimating the gains over the long run." 

Attending the summit, heads of central banks in Canada and the USA have made very careful remarks. Bank of Canada Governor Tiff Macklem has expressed his balance remark, stating that AI will be transformative but, at the same time, could be a disruptive transition. Federal Reserve Chairman Kevin Warsh has, as usual, expressed a positive view about AI booms. He has said, “I’d say the advent of this new technology is probably the most consequential change to the US and the global economy in my lifetime at this point." He further added that the immediate future may seem to be bumpy, but eventually, in the long run, the technology would be a positive supply shock, as it would raise the economy’s capacity to produce more goods and services without necessarily boosting inflation. Obviously the Fed Chair will express optimistic views about AI, because he leads the world’s largest economy, where a 10 trillion dollar investment in AI is anticipated in the next few years, which is one-third of the US economy and one-fourth of the US sovereign debt. Not only that, but if AI investment can meet its target, the US economy will be growing based on this technological boom. 

 

The annual meeting of the IMF and World Bank, which usually discusses the world economy, monetary condition and liquidity situation, has turned into an AI conference with hectic discussion about the prospect and threat of this new technological boom. The level of discussion, which was supposed to take place prior to the AI move, is now taking place when this technology is ready to take off, creating immense hope, aspiration and challenge too. To what extent the views and opinions expressed in the IMF annual meeting change the course of AI would remain to be seen.

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