In the wake of a recent Microsoft outage, financial analyst James Smith explored whether the global economy could survive without AI in 2027. The outage highlighted the underappreciated risks of critical infrastructure failures, with only 2% of attendees at a Global Outlook webinar identifying supply shocks as the biggest risk for 2027, compared to 34% who feared an AI bubble burst.
Smith noted that while a chatbot crash wouldn't significantly impact global GDP, repeated or widespread outages could erode confidence and force businesses to invest more in resilience. This preparedness might explain Europe's subdued core inflation. In the UK, data center rollouts are contributing around 0.4 percentage points to annual growth, a trend likely to continue.
Turning to the US, Smith acknowledged AI's role in boosting economic growth but questioned its impact on inflation. Despite Fed Governor Chris Waller's claims that AI is driving inflation, evidence of 'chipflation' remains weak. The Fed is expected to raise rates by 25 basis points in December, though a 50 basis point hike is considered unlikely.
In the UK, inflation is expected to rise slightly due to higher energy prices, with headline CPI nearing 4.5% early next year. Meanwhile, a UK-EU summit is anticipated to yield agreements on reducing trade barriers and increasing youth mobility.