Emerging Markets Economic Outlook & Strategy
CITI’S TAKE
There are only a few potential EM winners (Taiwan, Korea, Singapore) in the US-led AI capex cycle, but if the 1990s IT revolution were any guide, prospects for future productivity gains could accrue more to the “users” versus “producers”. Here too, EM looks relatively disadvantaged vs DM, as AI adoption prospects remain highly correlated with per capita GDP through digital-infra/skills, and occupational structure’s readiness for AI disruption. China’s lower-cost “frugal stack” could accelerate AI diffusion across EM but its benefits are likely to be unevenly distributed to a few. It is too early to assess labor-market effects, but abundance of young job-seekers in Africa & Asia is a challenge. AI could narrow the skills-gap between DM and EM, but overall effects are unlikely to be large enough vs displacement and commodification of lower skilled tasks. India’s business process outsourcing services export growth remains very resilient, while Philippines’ is slowing sharply.
The rapid growth of AI technologies could disadvantage most of EM vs DM led by US. China is the only EM economy in the AI frontier producer stack, but even there, the effects are not large enough to offset domestic demand weakness. If the 1990s IT revolution were any guide, future productivity gains could accrue more to the “users” versus “producers”. Here too, EM looks relatively disadvantaged vs DM as AI adoption (current and prospects) remain highly correlated to per capita GDP through digital-infra/skills, and occupational structure’s readiness for AI disruption.
Only a small group of EM economies are meaningful potential winners from the US-led AI capex cycle. Taiwan, Korea and Singapore stand out through their role in supply-constrained (upstream) semiconductors, translating external demand into production, terms-of-trade and investment gains. Lower value-added downstream IT supply chain in Malaysia, Vietnam, Thailand or Mexico has smaller macro effects. Data-center investment supports a few small hubs such as Malaysia and Thailand but imported equipment and low operational employment constrain domestic spillovers; dividends may come from services exports and domestic AI adoption.
AI’s labor-market effects may be emerging first among younger workers and outsourcing hubs, with increasingly divergent outcomes. While we are still in the early stages of AI adoption in EM, abundance of young job-seekers in Africa & Asia is a challenge. India’s BPO exports remain robust, potentially supported by deeper skilled-labor pools and expanding global capability centers. Philippine BPO growth, by contrast, has slowed sharply amid its heavier dependence on voice-based customer services, which may be vulnerable to increasingly capable AI agents.
What happens to EM if the “AI bubble” eventually bursts? We see three transmission channels to EM: heightened risk aversion, spillovers from weaker real demand (not only on AI capex but reverse wealth effects) and financial vulnerabilities (leverage, margin calls). In such a scenario, while US Treasuries are the typical safe haven, their hedging properties to equity market sell offs have arguably weakened per BIS, creating a potential opening for some “high quality” EM local currency bonds, particularly if (and this is a big if) the shock is large enough to cause a large repatriation of flows away from the US, resulting in a weakening of US dollar.
Προσθήκη του MarketsReport.gr στην Google