Artificial Intelligence and the economy

Artificial intelligence (AI) is the topic of technology as the world lives through an era of technological transformation and transition to new levels. AI represents a qualitative leap in technology and its impact on various aspects of life is accelerating. Automation and big data analysis are now integral parts of global economic systems. This massive digital transformation brings about new challenges and opportunities to the economy.

We have recently witnessed a major technological revolution that has turned many scientific fantasies into tangible realities. Robots have become more intelligent and adaptable and have become increasingly used in various fields such as manufacturing, healthcare and logistics.

To start with, AI is a field in computer science focused on developing systems and programmes capable of performing tasks that are considered human intelligence.

It aims to design and develop systems that can learn, think and make decisions similarly to humans. AI seeks to enable computers to perform certain tasks such as machine learning, voice and image recognition, natural language processing, planning, intelligent reasoning, medical diagnosis, economics, e-commerce, autonomous vehicles and industrial control systems.

The practical applications of AI are diverse, covering many fields where it can help improve efficiency, accuracy and decision-making based on vast databases.

AI has adopted modern applications like “Smart Assistant” to easily accomplish tasks, and “Chat GPT” to solve scientific problems, provide solutions to various issues, and edit scientific and literary articles, among others.

AI and the economy work together to achieve improvements in efficiency and economic performance. They are fields that use technology and data applications in the context of economic and social systems.

AI can be used to analyse and interpret economic and financial data, provide forecasts on economic behaviour and predict future economic trends. AI can also contribute to improving efficiency, enhancing performance, stimulating economic growth, increasing production, reducing costs, improving strategic planning, managing inventory, and optimising supply chains.

According to a report released by Goldman Sachs in 2022, AI is expected to increase global GDP by 1.5 per cent over the next decade by stimulating trade, investment and international cooperation according to World Economic Forum predictions. AI will inject trillions of dollars to the global economy.

The use of AI is expected to add $16 trillion to the global economy by 2030 as per international reports, without a doubt, China and the United States are the key players to benefit significantly from this technological boom, accounting for 70 per cent of the global AI impact because of their advanced technology Studies indicated that banking services, global technology, and life sciences will be among the most benefitted sectors from this improvement.

In the banking sector, AI can add between $200 and $340 billion annually in advanced financial activities, and in retail and consumer goods, the impact could reach between $400 and $660 billion annually.

Regarding global labor markets, productivity growth is expected to range between 0.1 per cent and 0.6 per cent annually until 2040, and about 60 per cent of jobs worldwide could be affected. AI integration might enhance some productive jobs and improve company performance efficiency.

According to the International Monetary Fund (IMF), AI’s impact on the global labor market will exceed 40 per cent of the workforce by exposing them to AI in some way.

AI is expected to lead to the loss of 85 million jobs and the creation of 97 million new jobs by 2025. AI reduces employment rates and eliminates jobs, as seen in global companies like Meta, Amazon, Alphabet, and others, yet it creates opportunities for development and growth in these companies’ businesses.

The use of AI to stimulate economic growth requires careful planning and proper implementation, a clear strategy for collaboration between the public and private sectors is required to ensure the benefits of technology are achieved. AI operations impact the economy by enhancing company and industry performance and improving customer service.

Chatbots, for instance, can interact with customers and provide support. AI will also influence financial markets through technological developments such as automated trading, enabling faster buy and sell decisions of financial assets based on precise data analyses and market forecasts and trends, and risk management by monitoring and analysing activities, and detecting unlawful activities and fraud in financial markets.

Several countries around the world are encouraging AI investment and are establishing regulatory frameworks for its use. Conversely, countries that do not pay attention to this field may miss out on significant economic opportunities and struggle to cope with global developments.

According to a report from S&P 500 Index, AI company growth could continue to 5200 points this year, indicating at least a 9 per cent increase for 2024.

Meanwhile, a recent “Business Insider” report highlighted Wall Street activities, noting that the massive boom in AI company stocks will support the global economy and increase countries’ economic growth rates by 1 per cent to 2.3 per cent.

To assist countries in formulating sound AI policies, IMF created the “AI Readiness Index”, which measures readiness in areas such as digital infrastructure, human capital and labour market policies, innovation and economic integration, and regulatory and ethical frameworks. Using this index, IMF experts assessed the readiness of 125 countries worldwide.

The assessment revealed that wealthier economies and emerging markets are generally better equipped to adopt AI than low-income countries. Singapore, the United States, and Denmark scored highest on the index, with the UAE ranking 28th. Thus, advanced economies should prioritise AI innovation and integration while establishing robust regulatory frameworks.

This approach will create a safe and responsible AI environment and enhance cybersecurity. Emerging markets and developing economies should prioritise establishing a solid foundation for technological transformation through investments in digital infrastructure.

However, pursuing AI usage is not without challenges, such as its impact on the labor market, potential job losses in traditional roles, increasing economic inequality, concerns over privacy and data security and legal and ethical challenges related to the proper use of AI.

In Jordan, the Jordanian AI Strategy and Action Plan (2023-2027) has been approved to position Jordan as a leader in this field. The strategy includes five main goals: Developing a supportive AI ecosystem, encouraging AI scientific research and development, enhancing the investment and entrepreneurial environment in AI, ensuring a supportive legislative and regulatory environment for the safe employment of AI, and applying AI tools to improve the efficiency of the public sector and priority sectors.

Haider Al-Majali is an expert in economics and finance