The ratings agency estimates that generative AI (GenAI) could drive average annual productivity gains of 1.5% across 106 rated sovereigns over the next decade. If sustained, this would result in a cumulative productivity increase of nearly 15% from current levels.
Uneven gains: Advanced vs emerging economies
That said, the report cautions that these gains will be unevenly distributed, with advanced economies (AEs) expected to see the largest benefits ranging from 1.2% to 2.9% compared to just 0.4% to 1.4% for emerging markets (EMs).
“Advancements in AI will affect the labour market more widely and deeply than previous technological breakthroughs given the application for unstructured, cognitive tasks,” the report states.
What’s striking, however is that unlike past waves of automation, which replaced routine physical labour, AI is now making inroads into “cognitive and nonroutine domains, including research, legal services and creative functions”.
While the technology promises efficiency, Moody’s highlights significant “transition risks” for governments.
In advanced economies, nearly 30% of the workforce is in roles high in “complementarity” that stand to be augmented by AI, but an equal 30% are in roles subject to direct automation and replacement.
Middle-skilled workers performing routine cognitive tasks are particularly vulnerable, a trend that could accelerate “middle-class shrinkage”.
Social risks of AI boom
The reports also emphasise a widening demographic divide. Aging economies like Japan, South Korea, and parts of Europe may find AI a necessary “silver bullet” to offset shrinking workforces.
However, the benefits may be tempered by social risks.
“AI is likely to increase wealth, gender and education-based inequalities,” Moody’s notes, pointing out that women and older workers are often overrepresented in administrative roles at high risk of automation.
Ultimately, the impact on sovereign credit quality will depend on how effectively governments manage the “trade-off between the social and fiscal costs of AI, compared to the productivity gains accrued”.
Governments may be forced to increase spending on reskilling programs and social safety nets to mitigate the fallout of labour disruption.
