This time last year, investors and markets believed a US recession was imminent and the mood was bearish for all risk assets. While the predicted recession has not materialised, we are not out of the woods and there is still considerable uncertainty about how this cycle is going to play itself out. What is manifestly evident is that the era of low inflation and economic growth driven by outsourced productivity gains is over.

Around the same time, another noteworthy event took place – the launch of ChatGPT. Released at the end of November 2022, the large language model-based chatbot exploded into the mainstream almost overnight. According to some estimates it was the fastest-growing internet service ever, reaching 100 million users in just two months. It’s led many to fear a potential ‘jobs bloodbath’, generated calls for regulation, inspired fear in media circles and freaked out teachers. But it’s also made many people excited about the opportunities to boost productivity, efficiency, creative ideation and knowledge management.

In my view these two historical events are interconnected, representing a challenge and its potential solution. Jonathan Wilmot, an economist widely known for his insight into the world economy, markets and secular trends, posits that we’re on the brink of a new market paradigm, one propelled by the imperative to solve three global problems – a dwindling labour force due to the ageing global population; the requirement for a cost-effective healthcare model prioritising prevention, early detection and precision treatment to cope with this ageing demographic; and the race to net zero and the substitution of clean energy for fossil fuels.

Whether or not you subscribe to the idea that these are the paramount issues of our times, it is difficult to dispute their magnitude; they’re poised to significantly shape the global economy and geopolitical landscape. Within this, AI is set to play a substantial role in finding solutions. Wilmot envisions a future driven by the unprecedented substitution of capital for labour on a global scale – a phenomenon he terms ‘the mechanisation of everything’.

This entails not just automation but the development of a new generation of industrial robots, distinguished by greater sophistication, adaptability and synergy with human labour. It also encompasses the evolution of large language models such as ChatGPT, tailored to enhance productivity and reduce labour requirements in the service sector.

Moreover, addressing the challenges posed by ageing populations will necessitate innovative strategies to enhance the health and economic engagement of older individuals, reducing their burden on younger generations. The third challenge, moving the world to net zero by 2050, is being met – not quite head-on but efforts are under way. A huge amount of work is being done to decarbonise the transportation, construction and energy sectors. We can see substantial progress and innovation in this domain, with the benefits of scale forcing down the prices of solar panels, batteries and other clean-energy products, while intermittent supply and storage issues are being grappled with. Last year marked a significant milestone, with more investment directed towards new energy and clean energy infrastructure than traditional ‘dirty’ energy infrastructure. However, we still require high levels of innovation and investment to replace the old technology with the new alternatives, whether that’s healthcare or automation or clean energy and transport.

AI stands as the foremost enabling technology for these three revolutions because it interfaces with various other technological advances, expediting the pace of innovation. For instance, it could accelerate cancer and Alzheimer’s research, and the development of new compounds and materials that can contribute to decarbonisation, thereby enhancing our capacity to devise more efficient solutions to pressing economic challenges.

So, how will the change in one of the factors of production (labour) impact global financial markets? To my mind this is an epochal change that could potentially impact everything from bond yields and inflation to global industrial output and productivity.

By Sasha Planting