Will AI transform the economy—or just boost productivity?

Investing.com -- AI may supercharge productivity without reshaping the global economy, economists warn, though its ultimate impact remains wide open.

In a recent webcast with academic researcher Anton Korinek, Morgan Stanley’s chief global economist Seth Carpenter and head of thematic research Stephen Byrd said the potential of so-called “transformative AI” lies in its ability to reproduce and improve on human-level intelligence.

They noted that reaching truly transformative AI “is not yet a foregone conclusion,” depending on whether scaling laws continue to deliver exponential progress.

If that threshold is reached, they said, “the limits on the size and growth of the economy will blur again, and the question of what humans will do becomes unavoidable.”

They also questioned whether society will expand the definition of economically valuable work, especially if AI performs most tasks without human input, putting regulation and government policy at the center.

Such a breakthrough, they said, would mark the kind of structural shift seen only a few times in history—comparable to the Industrial Revolution, when technological progress replaced land as the main constraint on growth.

Until then, AI’s main impact is likely to come from accelerating productivity and reshaping labor markets rather than triggering mass unemployment, economists said.

“Despite widespread fears, we do not see a high probability of near-term mass unemployment from AI adoption,” they wrote in a Sunday report, adding that history suggests new technologies typically lead to higher output rather than fewer jobs.

The economists also dismissed the idea that higher productivity alone will permanently suppress inflation, arguing that fiscal and monetary policy will remain critical in balancing demand.

“Ultimately inflation is the result of where monetary policy leaves it,” they said.

For financial markets, Carpenter and Byrd expect stronger productivity to lift corporate profits and equity valuations over time.

“A surge in productivity should no doubt boost equity markets – fundamentally, we are talking about a higher return on capital,” they said. Still, the analysts cautioned that there will be “winners and losers,” as some firms lead the AI shift while others are disrupted.

For interest rates, the impact also may become complex. While economic models imply higher long-term rates as the marginal product of capital rises, central banks may initially cut rates if AI adoption exerts disinflationary pressure or leaves slack in the economy.

Morgan Stanley said AI remains a central research theme, and its influence on the economy and markets “will continue to be.”