Macro Markets and Machines_The Economic and Market Transformation Driven by AI_GWM report - Flipbook - Page 4
Macro, Markets, and Machines
November 2025
Key Conclusions
•
Technological advancement is a structural tailwind for productivity and profits: Much like previous
breakthroughs, the current wave of technological innovation, powered by AI, is driving a new wave of
productivity growth. Businesses that effectively integrate these tools may be positioned to lower costs,
expand margins, and increase profits, with the capital share of income rising relative to labour. Over time,
this should help provide support for corporate earnings and equity valuations.
•
Supply bottlenecks and higher output may raise inflation relative to baseline: The build-out phase of this
innovation cycle requires significant capital investment in data centres, semiconductors, energy
infrastructure, and materials. This can create supply bottlenecks and fan inflation in the near term. As
productivity gains materialize, inflationary pressures may diminish somewhat amid excess supply, though the
impact on long-term inflation will depend on the extent to which AI’s income gains raise aggregate demand.
•
Advanced economies will benefit most, at least initially: The United States, Canada, and other advanced
economies are best positioned to capture early benefits given their higher exposure, digital preparedness,
and access to capital and computing resources. Emerging markets and low-income countries may lag in early
gains but could become more attractive as costs decline and technology diffuses.
•
The labour market impact may be uneven and complex: The balance between job augmentation and
automation remains unclear and will determine the degree of labour market disruption. Job displacement
and/or wage suppression risk may be higher in advanced economies with more knowledge-intensive work.
However, like past technological innovations, new employment fields and higher-value jobs may be created
over time, with the caveat that the transition period may be uneven and disruptive to the labour market.
•
Equity market parallels to the dotcom era are warranted, but there are key differences: Recent equity
market gains have been driven by a small subset of companies, raising concerns about an AI bubble and
concentration risk amid elevated valuations. However, today’s leaders are fundamentally stronger than those
of the dotcom era. As the innovation cycle matures, productivity and earnings growth are likely to broaden
across industries.
•
Diversification has been, is, and will always remain essential: While equities are the likeliest long-term
beneficiaries of technological progress, investors should remain diversified. Elevated valuations, policy
uncertainty, and concentration risk warrant balanced exposure across asset classes. Fixed income and
alternative assets will continue to play a key role in helping to mitigate volatility, and ultimately, diversification
across regions, asset classes, and sectors remains the most effective strategy to navigate an innovationdriven but uncertain investment landscape.
Scotia Wealth Management
3
