Macro Markets and Machines_The Economic and Market Transformation Driven by AI_GWM report - Flipbook - Page 38
Macro, Markets, and Machines
November 2025
The BIS highlights a stark divergence in how the different components of the macroeconomy, GDP aside, may
perform depending on whether AI adoption is anticipated or unanticipated (Exhibit 31).
In the first case, households observe concurrent productivity gains but also anticipate future benefits,
resulting in a stronger near-term positive shock to consumption (smoothing present spending with now
higher expected spending) that triggers a steep increase in inflation of over 2 p.p. versus baseline at its peak that
lasts for several years (Exhibit 32). In turn, the policy rate steeply overshoots its baseline level by over 3 p.p. for
most of the first decade. Investment is crowded out by higher consumption but is also significantly dampened
by higher policy rates as central bankers take their cue from demand-driven inflation, ultimately resulting in a
slightly lower capitalization of AI in GDP over the long run.
In an unanticipated case, the BIS’s simulation shows the opposite result in the near term, with inflation
negatively affected relative to baseline. The TFP improvement from AI adoption prompts a strong increase in
GDP, with greater productive capacity and lower costs amid increased supply reducing inflation in the first five
years relative to baseline. Over this period, the policy rate falls in line with subdued inflation in the near term.
Exhibit 32 – Inflation and Policy Response Depends on Nature of AI Productivity Shock
4%
4%
Monetary policy rate
response
4%
3%
3%
3%
2%
2%
1%
1%
1%
0%
0%
0%
Inflation response
Output gap response
Anticipated
Unanticipated
Average
2%
-1%
-1%
-1%
y=0
5
10
15
y=0
5
10
15
y=0
5
10
15
Sources: BIS; Scotia Wealth Management.
Yet the BIS’s unanticipated case framework sees households slowly waking up to the new economic reality of
large AI benefits, with the effects of AI adoption on aggregate demand overtaking those of higher aggregate
supply and therefore triggering an acceleration in inflation from around year five that peaks around years 11–15
at 0.5–1.0 p.p. above baseline. Following years of below-target inflation, central banks respond with restrictive
policy rates that sit about 1–1.5 p.p. above baseline at their peak in years 11–15.
On balance, the BIS’s research concludes that AI adoption would generate much higher inflation than the
IMF’s framework relative to baseline, with both studies agreeing on a net positive inflation impact in the medium
term that continues over the simulation horizon in the BIS’s study but turns into a marginally deflationary effect
in the IMF's scenario.
Scotia Wealth Management
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