AI, NATO, US GDP and FPC Review in Focus

AI Could Replace 300,000,000 Jobs, Goldman Sachs Report Argues

Five years ago, around three hundred of the world’s leading researchers in the field of Machine Learning were asked when they thought that AI systems “would be able to accomplish every task better and more cheaply than human workers”. According to the results, on average they estimated a fifty percent chance of this happening by 2061 and a ten percent chance of this happening by 2025.

On Sunday, Goldman Sachs released an investment report suggesting that AI could replace the equivalent of 300,000,000 full time jobs globally. This, it said, could cause significant disruption to the labour market as two-thirds of jobs in the US and Europe are exposed to some level of automation.

Nevertheless, they noted that the move towards automation would also create new jobs and occupations while labour cost savings and productivity increases could rise productivity growth by 1.5 percentage points over a 10-year period following “widespread adoption” in the US. When looking more globally, Goldman said that “the boost to global labour productivity could also be economically significant, and we estimate that AI could eventually increase annual global GDP by 7%.”

Therefore, given the last three years have acted as a major catalyst for both private and public sectors to explore integrating – or further integrating – artificial intelligence, it is evident that the labour market will be subject to significant changes from hereon in.

Market Awaits US Q4 GDP Print

This afternoon will see the release of US GDP for Q4 2022, where the general market consensus is expecting to see a print of 2.7% on an annualised basis. This latest estimate of US GDP Growth follows an earlier estimate in January which indicated that the US economy grew 2.9% on an annualised basis in Q4. This beat expectations of 2.6% and helped markets build confidence in the notion of the US economy having a ‘soft-landing’. Here, the re-filling of inventories helped push up business demand, though fixed investment reduced 6.7% as businesses grappled with economic uncertainty and rising costs.

On a longer-term view, at the back end of 2022, the OECD estimated that real GDP is projected to grow by 1.8% in 2022, 0.5% in 2023 and 1.0% in 2024, though many organisations have upwardly revised these figures in recent months.

FPC Review Highlights

Yesterday, the Financial Policy Committee released their Financial Policy Summary and Record which seeks to identify risks to the financial stability of the UK economy. The review highlighted how instability in the global banking sector was increasing investor caution, though stated that existing regulations for banks in the UK mean that they “have significant financial resources to absorb shocks.” The review reiterated that steps taken to improve regulatory standards in relation to banks’ capital and liquidity would mean that the banking system was in a better position to weather storms.

The report also highlighted how the severe stress in liability-driven investment (LDI) funds in autumn 2022 had revealed how some financial institutions need to increase their resilience to interest rate shocks. Here, the FPC recommended that LDI funds should be able to “withstand severe but plausible stresses in the gilt market; meet margin and collateral calls without engaging in asset sales that could trigger feedback loops; and improve their operational processes to meet margin and collateral calls swiftly when needed.” The FPC thus judged that LDI funds should be resilient, at minimum, to a shock of a 250bps. It was following Kwasi Kwarteng’s disastrous mini-budget that yields on 10-year government gilts rose from 3.5% to 4.3% in the space of one session as willingness to own debt waned, driving up the price of borrowing. Hence, as the LDI ecosystem comes under scrutiny, the Bank of England will be keeping a close eye on the market given its implications on the wider economy.

Today will see the Turkish parliament vote on whether to approve Finland’s membership of Nato. This follows almost a year’s worth of political back-and-forth with President Recep Tayyip Erdogan’s u-turning several times over whether to veto Helsinki’s accession or not. In recent weeks however Erdogan has favoured their membership and has backed the bill, meaning that it is likely to get through parliament later today.

Erdogan previously sought to block Sweden and Finland’s Nato Accession maintaining that Sweden’s links with the Kurdistan Workers’ Party (PKK) and other Kurdish organisations undermine Turkey’s security. Erdogan’s Justice and Development Party (AKP) has been long been hostile to Kurdish secessionists and those living in the Northern Kurdistan region in Southwest Turkey. Following Turkey’s 2019 ground offensive and military occupation into the Kurdish region of north-eastern Syria, Sweden and Finland emplaced an arms embargo on Turkey, and diplomatic ties have since been strained ever since. If Turkey approves of Finland’s accession, they will be one step closer to joining the organisation and will mean that NATO will have another 1,300 km border with Russia.

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