Generative AI to transform business but comes with social risks, says Moody's

Governments will face the challenge of weighing up the benefits of broad adoption against likely social pressures, according to latest report

The economic impact of generative AI may take time to become tangible, according to Moody’s Investors Service. Reuters

Generative artificial intelligence, when combined with other existing AI tools, has the potential to transform the way companies and individuals work, Moody’s Investors Service said in a report released on Friday.

It can bridge skills gaps, contribute to longer-term economic growth and address demographic challenges, particularly with regards to the ageing population in some economies.

Broader adoption can also accelerate technological innovation, initially benefiting services and creative industries but eventually spreading across most sectors, the report said.

Economies that are unable or unwilling to foster wide adoption of generative AI applications risk losing competitiveness with negative consequences for longer-term growth. For example, some countries have banned the use of ChatGPT over ethical and privacy concerns.

However, the extensive use of generative AI may also result in job losses across advanced and emerging economies. Therefore, governments will face the challenge of weighing up the benefits of broad adoption against the likely social pressures.

“Economies with large services sectors and high labour costs will be most vulnerable. Political tensions may ensue, creating dilemmas for governments in their approach to AI policy. Ethical and security issues, including misuse of the technology are further risks,” the rating agency said in the report.

The economic impact of generative AI may take time to become tangible and improvements will likely take time to feed through to economic growth, the report said.

This is because any productivity boost will “involve material changes to companies' internal business processes and to the way services and goods are produced”. It will also depend on how fast generative AI diffuses across whole countries and business sectors.

Currently, the development of technology is concentrated within a handful of large companies based in the US, the world’s largest economy.

Those countries and industries with easy access to generative AI will outperform which could further exacerbate inequality, according to the report.

Microsoft-backed OpenAI’s ChatGPT and Google’s Bard are two front-runners in the burgeoning field. This month, the Abu Dhabi government-supported research centre Technology Innovation Institute launched Falcon 180B – an advanced version of its flagship language model – to boost generative AI capabilities in the region.

Next month, the UAE will host Dubai Assembly for Generative AI, which aims to shape the future of AI and introduce governments and societies to the opportunities it provides.

“Barriers to entry are high because it is expensive to develop the technology and vast data sets are needed to train the models effectively. If the technology is not widely or easily accessible, too expensive to adopt, or if access to it is restricted due to corporate or national and geopolitical interests, the macroeconomic benefits may be fewer,” Moody’s said.

Generative AI could add nearly $4.4 trillion annually to the global economy and will transform productivity across sectors with continued investment in the technology, according to a new study by consultancy McKinsey.

It has “enormous” economic potential and could raise global labour productivity growth by more than one percentage point a year in the next decade, Goldman Sachs said in a report in July.

In the long term, AI-related investment could reach 4 per cent of gross domestic product in the US and 2.5 per cent of GDP in other AI-leading countries in the next 10 years, it said.

In the short term, AI investment could grow quickly in the next couple of years, approaching $100 billion in the US and $200 billion globally by 2025, the report added.

Moody’s said an effective regulatory framework governing the use of generative AI is necessary to thwart social, political and policy challenges. To maximise benefits and minimise misuse, it is also essential to address generative AI-related issues of ethics, transparency, privacy and security.

However, regulating the use of the technology will be “challenging and complex”, Moody’s said.

“This stems from the inherent complexity and surprising power of generative AI models. Its generation of original content means regulators may not be able to fully guarantee or truly evaluate the behaviour or output of such models before they are rolled out.”

Governments with strong institutions and policies are better positioned to develop credible regulatory frameworks, the report said.