Generative AI's economic contribution likely to rise, Goldman Sachs says

Forecast is now as much as 15%, based on premise that workers will not be permanently displaced by AI

A conversational AI concept using natural language processing. Getty Images

The contribution of generative artificial intelligence to global gross domestic product is now expected to be higher within the next 10 years as adoption of the emerging technology is expected to grow, Goldman Sachs has said.

Baseline estimates now imply a long-run boost of between 10 and 15 per cent, on the premise that workers are not permanently displaced by AI and "the capital stock rises to match productivity improvements", the investment bank said.

That compares with Goldman Sachs' earlier estimate that the successful adoption of AI in labour productivity would boost the level of global GDP by between 7 and 13 per cent.

However, the new estimates will still depend on the timing and magnitude of AI's effects globally, which is still surrounded by "considerable uncertainty", Goldman Sachs economists Joseph Briggs and Devesh Kodnani wrote in the report.

"In addition, barriers to adoption may delay productivity growth even if the full efficiency gains we see as possible are ultimately realised," they said.

In practice, generative AI's net effect on GDP is likely to be smaller for two reasons.

If viewed as the “next wave” of innovation, the growth impact of generative AI may not be fully additive to the current GDP trend, they said.

"Information and communication technology has recently driven almost half of labour productivity growth in developing market economies, reflecting both increased ICT investment and complementarities with existing inputs.

"So, some AI-related gains may substitute for growth that would otherwise occur in a non-AI baseline."

The second is the potential for underlying productivity growth to slow down.

Goldman Sachs highlighted recent research that suggested near-term total factor productivity grows linearly, "with an occasional step-up following technological regime shifts, rather than exponentially".

"Unless AI ushers in a new productivity growth regime – an outcome that is possible but premature to forecast – the boost we anticipate from generative AI may be partially offset by an underlying growth slowdown," they said.

The AI industry received a boost with the emergence of ChatGPT, created by Microsoft-backed OpenAI, which became a sensation because of its advanced conversational skills.

That sparked a race between the biggest technology companies and personalities, including Microsoft, Google, Amazon, Oracle and Elon Musk.

Investors ploughed billions into generative AI start-ups in 2021 and 2022, prompting countries to tap into the technology's potential.

Globally, AI investments are projected to hit $200 billion by 2025 and could possibly have a bigger impact on GDP, Goldman Sachs has previously said.

Generative AI is also expected to hold immense economic potential: GCC countries, for instance, are expected to reap about $23.5 billion in economic benefits by 2030 as investments in generative AI continue to grow, PwC unit Strategy& Middle East said in a September report.

For businesses, generative AI could generate value equivalent to anywhere between $2.6 trillion and $4.4 trillion in global corporate profits annually, based on 63 use cases where the technology could raise productivity, a recent study from the McKinsey Global Institute said.

However, the technology has also been considered overhyped and ranks top for “inflated expectations” for emerging technology in 2023, an August study from Gartner showed.

Goldman Sachs predicts GDP growth boost will not exceed 0.1 percentage point until 2027 in the US, 2028 to 2032 in other developed markets and advanced emerging economies, and 2034 or later in emerging markets.

The projections are based on "historical productivity gains following technological breakthroughs, commentary from business leaders and cross-country technology adoption patterns", the economists said.

Updated: October 31, 2023, 5:00 AM