Macro Markets and Machines_The Economic and Market Transformation Driven by AI_GWM report - Flipbook - Page 5
Macro, Markets, and Machines
November 2025
Section 1: A Trip Down Memory Lane – The Arc of
Technological Innovation
Walid Khalid, CFA | Director, Investment Strategy, Scotiabank Global Wealth
Juan Manuel Herrera | Senior Economist, Scotiabank Global Wealth Management
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Productivity growth and gross fixed capital formation as a share of GDP have slowed since the turn of the
century, but surging AI-related capital expenditures (capex) could reverse this trend.
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Major technological breakthroughs (railways, electrification, personal computing, etc.) have always required
heavy capex before widespread benefits materialize. AI is entering a similar phase, with early investment
laying the foundation for future productivity growth and economic transformation.
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The AI boom could still be in the early innings, with the capex cycle having room to run and technology
spending accelerating. Up until now, AI-related capex and technology spending in recent years is running
ahead of the pace of investment growth seen during the dotcom era.
In the decades following the PC and Internet boom, productivity growth slowed noticeably. Innovations in the
2000s and 2010s were largely iterative rather than transformative, enhancing efficiency at the margins but not
fundamentally changing how businesses operate. The Global Financial Crisis also weighed on investment
appetite, limiting capital formation across advanced economies.
Today, however, the surge in technology-related investment, primarily centred on AI, suggests that we may be
on the cusp of another inflection point. In the post-pandemic era, businesses have committed billions of dollars
to AI infrastructure, software, and talent. This wave of capital points to their conviction that AI could drive a new
era of productivity growth. Just as past breakthroughs redefined industries, today’s advancements have the
potential to serve as the next transformative innovation, one that could give a boost to growth and influence the
path of inflation, interest rates, labour markets, and portfolio returns.
In advanced economies like the United States, Canada, Germany, and the United Kingdom, average labour
productivity growth per worker has trended lower since the 1990s (Exhibit 1) with gains that once exceeded
1.5%-2% annually in the 1990s fading to sub-1% levels over the past decade. The United States has been an
outlier in the post-pandemic era with productivity growth turning higher while other advanced economies have
not seen the same rebound, though it may be premature to attribute this solely to AI-driven gains. According to
a paper from the International Monetary Fund (IMF), much of the productivity surge has been concentrated in
high-skill and IT-intensive sectors as companies that had boosted digital investment prior to the pandemic saw
another boost in digitalization with the shift to remote work, along with improved worker-to-job matching lifting
output per worker (Dao, Platzer, 2024).
AI and broader leaps in technology may help the U.S. economy sustain this trend. Indeed, American businesses
are playing an outsized role in the AI build-out and are dominating with respect to early adoption, with leading
technology companies investing heavily in semiconductors, data centres, and software. In addition, the United
States benefits from stronger access to high-end chips, a deep pool of AI talent, and more flexible capital
markets that allow firms to scale quickly. Other economies, such as those in Europe, may face slower digital
infrastructure rollout and stricter regulation. As such, productivity gains outside the United States may take
longer to materialize until AI adoption spreads more broadly across industries and regions.
Scotia Wealth Management
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