Key facts
- Fitch Ratings warned that a sharp correction in AI stocks could trigger a US recession and global economic stagnation.
- A 35% drop in AI stock prices over six months could lead to a US recession, Fitch estimated.
- In a recession scenario, US GDP could contract as much as 1.5% in the second quarter of next year.
- Private capital spending in the US could fall more than 6% in a recession scenario.
- US investment could contract 4.8% as firms reassess AI spending plans.
- Global GDP could fall below 1% over the course of 2027, consistent with global stagnation or recession in per capita terms.
Fitch Ratings has warned that a significant downturn in artificial intelligence-related stocks could trigger a recession in the US and lead to global economic stagnation. In a report released Tuesday, the credit rating agency outlined a scenario where a 35% drop in AI stock prices over six months, potentially due to a reassessment of investment returns, would likely result in a US recession.
In this recession scenario, Fitch analysts estimated that US GDP could contract by as much as 1.5% in the second quarter of next year. They also projected a fall of over 6% in private capital spending and a 4.8% contraction in overall US investment as companies re-evaluate their AI expenditure plans. The firm noted that a consumer slowdown, a hit to household wealth, and increased unemployment would also likely follow such a market crash, though this is not their base case.
Fitch highlighted the growing dependence of the US economy on AI, with fixed investment in the information technology sector accounting for 5% of GDP in the second quarter, a notable increase from pre-pandemic levels. The wealth effect from higher stock prices, where consumers spend more due to feeling wealthier, also plays a significant role, with US households holding $55.1 trillion in stocks and mutual funds in the first quarter. The total valuation of the US stock market relative to GDP is around 200%, a post-war record, according to Fitch.
The report further suggested that a US recession would likely spread globally, with global GDP potentially falling below 1% in 2027, a rate consistent with global stagnation or recession in per capita terms. Stock prices in countries like China, Japan, and the UK could also see declines of around 15% in Fitch's bear case scenario. The agency's analysis comes amid broader discussions about AI's potential economic impact and more existential fears surrounding the technology's future.