IMF warns of global GDP shock if AI bust happens

Vishala Sri-Pathma (0:00)

The trillion-dollar AI bet. What happens if it goes wrong? We can't have another data center.

Bob McNally (0:06)

We don't have enough water as it is.

SPEAKER_3 (0:08)

I don't think it's a problem, and I'm kind of excited. I just recently bought a Tesla, and I know that uses a lot of data, and it's awesome.

Vishala Sri-Pathma (0:15)

It's World Business Report from the BBC World Service. I'm Vishala Sripathma. On the way, could the AI boom be hitting a reality check as investors get nervous and communities push back against the AI data centers powering it? We're in Ohio and New York. Plus, getting a hot concert ticket has always been competitive. But now some fans fear their biggest rivals aren't even human.

So what happens if the AI boom goes bust? The International Monetary Fund, the world's economic watchdog, says the fallout could be felt well beyond the tech sector. It estimates a sharp drop in AI investment could knock more than 1% off global growth, rising to around 1.8% in the US. Now the warning comes just as shares in global tech and semiconductors have been sliding, although there has been a slight recovery with some stocks today. Despite this, the IMF's Managing Director, Kristalina Georgieva, remains optimistic about the future.

Kristalina Georgieva (1:24)

How do we prepare society for the world of AI?

I personally believe that, yes, risk killing is important, yes, opportunities for jobs, very important. But the most important change we need to do is here, in our heads. We have to get more entrepreneurial. Do not be nostalgic for the predictable past. Embrace the unpredictable, exciting future.

Vishala Sri-Pathma (1:54)

Rather optimistic, Kristalina Georgieva there. Jennifer Snyder is a financial advisor at Brighton Securities in Rochester, New York, and she joins us now. Hi Jennifer.

Jennifer Snyder (2:05)

Hello.

Vishala Sri-Pathma (2:06)

So, rather positive message there from the IMF's Managing Director, but sections of the markets have been less so this week.

Jennifer Snyder (2:15)

Yes, so we were seeing a bit of that, but today's actions I think looked a little bit more like profit taking than fear. So, investors aren't abandoning tech. They're just asking whether expectations have gotten ahead of reality. And that's been this conversation all summer from the last year or so, is we're investing so much, we're spending so much, we're borrowing so much. This comes back to a bank talk that we're going to talk about in a little bit. But because of all of that, what truly is the valuation of things? And so what we're seeing from investors is that it's probably perfect timing for some of these companies to just grab from some of those profits. And in truth, with data centers, infrastructure build-ups, we're looking at what is the next ripple effect? Where is the next opportunity for growth? And it truly is in some of these other sectors, utilities, manufacturing, things of that nature. Certainly there's going to be pushback, but that comes hand in hand with innovation.

Vishala Sri-Pathma (3:13)

And so, the anxiety is around the spending, and as you just said there, the challenge to that spending and the infrastructure required for AI.

Jennifer Snyder (3:23)

Yes, and so that's going to be the next hurdle, and it's going to come hand in hand with policy and what people are going to accept. And just like any massive revolution of things that have happened with our human existence, I see that as what we're in right now, and we have to see the silver linings of what's possible. And I think the self-regulation, the guardrails will naturally go up as we continue because we want the positivity of the human race to continue and how we can work effectively with super intelligence, artificial intelligence.

Vishala Sri-Pathma (3:55)

Okay, Jennifer, stay with us, because the market anxieties about the boom in investment into AI comes at a time when there is real concern about the growing number of huge buildings which drive AI, the data centers, as Jennifer mentioned earlier. And it is a particularly sensitive time in the US where protests against new data centers are going on as the country prepares for the crucial midterm elections which take place next month. These are residents in Mesa City who are concerned about the demand of the huge facilities place on water and electricity.

Kevin Poirot (4:29)

Get off it!

Stephen Witt (4:31)

Put people over profit!

Scott Freeman (4:33)

We gotta sooner shut it down!

SPEAKER_9 (4:35)

The point of technology is to make things more efficient, not to coat the earth in rapidly depreciating chips that heat, you know, neighborhoods.

SPEAKER_10 (4:43)

It's near elementary schools, it's near community centers, I mean outside of just being near my home, it's going to have a lot of bad effects for the area.