1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 41
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
scarce. With fewer future workers available, sustaining economic growth will depend less on
expanding labour input and more on productivity gains. In this sense, AI may help offset
demographic headwinds by allowing a smaller workforce to produce more, supporting growth
even as population dynamics deteriorate.
This dynamic may also help balance the financial needs resulting from a larger share of
pensioners against a smaller share of tax-contributing employment-age individuals. If each
worker were to produce – and be taxed on – higher output levels, the fiscal burden associated
with an ageing population can be partially alleviated. For instance, where one worker previously
generated sufficient taxable income to support the pensions of two retirees, productivity gains
enabled by AI could allow that same worker to support three retirees instead.
Conclusion
The AI capital super cycle is a powerful force shaping the global economic outlook. AI’s recursive
nature differentiates it from past technologies, allowing productivity gains to compound over
time while lowering marginal costs and reshaping profit pools. The near-term impact has been
characterized by capital deepening, rising concentration, and narrow market leadership, while
broader diffusion remains constrained by physical, energy, and institutional limits. Over time,
falling implementation costs should allow productivity gains to spread across sectors, lifting
margins and output, even as income accrues disproportionately to capital.
These factors strengthen the long-term case for owning equities, but also raise challenges around
inequality, labour displacement, and policy intervention. While the path forward is uncertain and
subject to meaningful constraints, history suggests that major technological revolutions
ultimately reshape growth through higher productivity, lower costs, and labour reorganization
rather than permanent displacement. AI appears poised to follow that pattern, with implications
that will unfold gradually, possibly unevenly, and with important consequences for markets,
policy, and society.
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