In a recent report, HSBC delved into the multi-faceted impact of artificial intelligence (AI) on the economy, highlighting promising advances as well as the potential pitfalls and challenges that lie ahead.
The report paints a balanced picture, examining the good, the bad and the ugly of AI, aiming to help investors navigate the development of this transformative technology.
Good
In the “good” part of the note, HSBC pointed out, among other things, the huge potential of artificial intelligence to improve productivity in various sectors. Generative AI, in particular, has been cited as a key driver of the productivity boom.
The report notes that AI has the potential to improve overall productivity, with estimates suggesting annual growth in the range of 0.1-1.0%.
“If this comes to fruition, it will be a significant tailwind for equity markets. However, past examples of similar technological developments suggest that this momentum may be more elusive than many currently expect,” HSBC researchers wrote.
One standout sector is design and manufacturing, where AI is already being used to optimize processes, reduce waste and create innovative products. For example, the Mercedes F1 team used artificial intelligence to develop a rear suspension part in just 48 hours—a task that would normally take six weeks.
The banking and financial services sector will also benefit significantly as AI will enable faster data analysis, more effective decision making and improved customer service.
HSBC also highlights broad benefits in other sectors, including pharmaceuticals, where AI is helping in drug discovery and clinical trials, and hospitality, where the emerging technology is improving the customer experience through virtual assistants and predictive inventory management.
Badly
Despite these promising prospects, HSBC researchers warn of potential downsides to AI.
Major concerns include the impact on employment. The report hints that AI-powered automation has the potential to replace a significant number of jobs, especially those that involve repetitive tasks. Even if AI does not lead to significant job losses, it will likely change the balance between capital and labor, shifting profits towards capital.
“A wide-ranging IMF study found that nearly 40% of the world’s jobs are affected by AI, with developed markets more susceptible to the shock (60% of jobs) given the structure of the labor market,” HSBC said.
“This is an important distinction early on: while automation (such as robotics) typically influences the demand for in-person work, AI will play a much larger role in the future of service-sector work, where “higher-skill” roles will be filled. potentially more at risk. As a result, the impact of AI is currently more likely to be evident in developed countries,” it added.
This could also impact the competitive landscape as companies may overinvest in AI technologies, driving up costs and reducing potential profitability.
HSBC said that while the initial productivity gains are attractive, historical parallels with other technology breakthroughs mean the benefits may not be as transformative as expected. Past examples, such as the dot-com bubble, have shown that excessive exuberance can lead to unsustainable investment growth followed by a sharp correction.
“Of course, it is probably too early to tell whether the current period of AI hype will end in the same way, given that we are still in the very early stages of the hype and investment that may well arise from it. “, writes HSBC.
“But it’s also worth keeping in mind that if we were to move into a period where expected returns from the AI-driven boom were exceptionally high, policymakers would have to respond with a period of higher real rates to limit the extent of financial excess in the system.” , the team continued.
Ugly
In its report, HSBC also did not shy away from addressing the more troubling aspects of AI.
One of the main problems is the erosion of trust and truth. Generative AI makes it harder to distinguish between real and fabricated content, posing significant challenges to cybersecurity, fraud prevention, and political stability.
“Over generations, humans have developed a variety of heuristics that have served us well so far,” the report says.
“In particular, we say: “Seeing is believing.” Well, not anymore thanks to Generative AI. This has serious implications for cybersecurity, fraud and political harmony.”
Moreover, the environmental impact of AI is another important issue. Increased use of energy-intensive artificial intelligence tools is expected to increase electricity demand, requiring more innovation in energy technologies to mitigate this growth.
Additionally, the uneven distribution of AI benefits could exacerbate inequality, particularly affecting emerging markets (EM), which could face even greater disruption as jobs move to developed markets.
To sum it up, while AI has enormous potential to revolutionize productivity and drive economic growth, the HSBC report urges caution. The benefits are unlikely to be distributed evenly, and the risks—from job losses and competitive pressures to trust issues and environmental concerns—are significant.
“Generally speaking, we see reason for optimism about the broader economic impact of AI, although not all companies, markets and people will benefit equally,” HSBC said.
“But while we’re not necessarily convinced by some of the arguments about the supposed threat of AI, we think it’s good for investors to understand them, given that they have the potential to form opinions about a technology that’s already driving huge changes in asset prices. “