If AI continues to disrupt, if not destroy, more and more business models, won't that cause a recession? It might if it triggers lots of white-collar layoffs, which in turn lead to blue-collar job losses (chart). Alternatively, it might cause a credit crunch in the private credit markets. UBS Group AG has raised its private credit default forecast, with its strategists warning that losses could reach as high as 15% in a worst-case scenario, up from 13% just weeks ago, Bloomberg reported. The bank said the increase reflects growing fears that rapid AI disruption could trigger severe stress among corporate borrowers. Technology companies, in particular, are seen as highly vulnerable to AI-driven upheaval. Current default levels in private credit are estimated at 3%–5%.
We aren't too worried about this latest recession mongering. In the worst-case scenario, the Fed will quickly step in with emergency liquidity facilities to avert an economy-wide credit crunch and downturn. We expect that laid-off coders will be replaced with "prompters," who can work most efficiently with AI tools to boost their companies' productivity. Yesterday, we observed that Indeed's job postings for software developers is currently up 11% y/y!
Meanwhile, we remain impressed by the resilience of the economy. Consider the following:
