Artificial intelligence (AI) is undeniably reshaping the world, however the potential risks it presents to the economy and financial markets must not be overlooked, as emphasized by Gita Gopinath, the First Deputy Managing Director of the International Monetary Fund (IMF).
During a recent address at an AI summit in Switzerland, Gopinath issued a stark warning regarding the potential impact of AI on economic downturns, suggesting that if the risks are left unaddressed, an ordinary downturn could escalate into a severe economic crisis.
While the prevailing discourse around AI has largely focused on concerns about privacy, security, and misinformation, Gopinath stressed the need to pivot the conversation towards the potential economic impact of AI.
She highlighted the significant risks AI poses to labour markets, with advancements in automation potentially resulting in widespread job displacement. According to IMF research, advanced economies could witness up to 30% of jobs at high risk of AI substitution, a figure that stands at 20% in emerging markets and 18% in low-income countries. This could lead to a substantial increase in long-term unemployment, carrying severe economic implications.
In the financial sphere, the rapid integration of AI technologies, particularly in areas such as algorithmic trading and robo-advisors, presents its own set of risks. Gopinath underscored the potential for AI models to underperform in unprecedented events, triggering a chain of market disruptions and plummeting asset prices.
Furthermore, as businesses incorporate AI into their operations, there is a risk of supply chain breakdowns due to errors produced by AI models trained on outdated or ‘stale’ data. This could have far-reaching implications for global trade and productivity.
Despite these alarming scenarios, Gopinath also proposed measures to alleviate the risks associated with AI. She emphasised the importance of ensuring that tax policies do not unfairly favour automation over human workers and called for measures to support workers through education, skills training, and enhanced jobless benefits. Additionally, she highlighted the potential for AI to aid in upskilling, targeted assistance, and early warning systems for financial markets.
Gopinath’s warning serves as a timely reminder of the pressing need for proactive measures to address the potential disruptions that AI could bring to the global economy. She emphasised the significance of swift action by governments, institutions, and policymakers to navigate the regulatory and preparatory challenges posed by AI.
In summary, the transformative potential of AI comes with significant risks to the global economy, and it is crucial for stakeholders to work towards ‘AI-proofing’ the economy while harnessing the positive potential of AI.
Citation:
Lynam, M. (2022, June 3). IMF official delivers stark warning on AI’s potential to turn an ordinary downturn into a severe economic crisis. CNBC. https://www.cnbc.com/2022/06/03/imf-official-gita-gopinath-warns-on-ai-risks-in-economy-financial-markets.html