Challenges to growth and the necessary mastery of technology

The current economic situation is heading towards an imminent scenario of stagflation or inflationary recession across the board, with little contribution from developed markets and with little room for maneuvering in terms of applicable economic policies.

In the short term, the recovery will be weak and fragile. In the long term, a new equilibrium will be reached. It will be characterized by lower global potential (falling factor productivity growth), increasing income, consumption and wealth inequality, an asymmetric impact of the digital, green, and demographic transitions, and high levels of global debt.

Moreover, recent supporting factors are fading (real rates at zero, excess liquidity, and demographic bonus of emerging countries); while other problems are appearing on the horizon, notably economic and cultural deglobalization, the US-China rivalry, the “end of the theory of commercial expectations,” and physical and productive stress in the global value chain.

A smooth transition to the new economic status quo necessarily involves resupply in the production chain, energy reconnection, global relocation, and reinvigoration of growth through productivity, which is inherent in the adoption of technological innovations.

The strategy to be followed, therefore, should prioritize access to resources, seek sufficiency (or dominance) in the global production chain, achieve competitive advantages in technology, maximize profits from global trade, and restructure traditional industrial policies.

To survive in the new global economic horizon, it is essential to lead technological change and thus reinvigorate potential growth by boosting total factor productivity. The right path is the exploitation of generative artificial intelligence, a “purpose technology” that will open new avenues of efficiency and productivity. The expansion in the use and applications of this technology will cause a structural change in every sector of the economy. It will have a particular impact on employment (reskilling, investment in human capital, replacement vs. expansion, etc.), factor productivity, the struggle for resources and the supply chain, regulation, ethical considerations, and so on.

Central to the exploitation of AI is the semiconductor market, whose global value chain is currently not dominated by anyone, but is made up of interdependent players that are highly specialized in their function.

For this reason, competition for the leading edge of this new technology and its supply chain is of crucial importance, and it will be the focus of international industrial policy for decades to come. A trade agreement between Western countries will be necessary in various areas. And China's role will be key, as it will be handicapped by its own political system and the EDA ban, which will lead to efficiency losses and limitations.