Wednesday, October 14, 2026Published from Singapore
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BIS warns AI automation could curb growth

The argument

A new working paper from the Bank for International Settlements suggests widespread AI adoption could paradoxically slow long-term economic expansion by shrinking consumer markets.

By Lena Ho13 October 20262 min read
Photo: Growtika / Unsplash

AI's Growth Paradox

Transformative artificial intelligence (AI) has the potential to significantly enhance productivity and automate tasks, which could accelerate global economic growth. However, new research from the Bank for International Settlements (BIS) suggests that such extensive automation could paradoxically lead to a slowdown in long-term expansion.

According to BIS Principal Economist Phurichai Rungcharoenkitkul, in a working paper published on 12 October 2026, the scale of automation envisioned could increase the share of investment in total output. This shift might reduce the size of consumer markets, thereby diminishing the potential returns for AI innovators and weakening the incentive for continued development.

The paper examines whether AI can sustain higher growth even as household consumption accounts for a smaller portion of overall economic output.

Modelling Automation's Economic Impact

The BIS analysis employs a task-based endogenous growth model to study the interaction between AI advancement and consumer demand. This framework posits that innovation, particularly in AI, is driven by the profits generated from consumer products.

As automation progresses and absorbs more resources, a greater proportion of economic output is directed towards investment rather than consumption. The model explores how this reallocation could lead to a decline in the consumption share and the associated profits, which in turn could weaken the motivation for further AI innovation.

The framework allows for various scenarios, depending on factors such as the speed of AI development and the duration of these innovation-driven profits.

Contrasting Growth Scenarios

The working paper identifies several potential economic scenarios resulting from AI adoption. Under a 'transformative AI' scenario, global economic growth could take off, reaching 5.5% after two decades and continuing its upward trajectory.

However, an alternative 'demand bottleneck' scenario projects a different outcome: growth accelerates only briefly before falling permanently below the pre-AI rate of 2% as innovation decelerates. Other scenarios explored within the model similarly indicate, at best, moderate gains in growth, falling short of the transformative AI outcome.

The calibrated model suggests that the 'demand bottleneck' scenario is empirically highly plausible, casting doubt on some of the more optimistic growth forecasts.

Implications for Economic Planning in Asia

The findings from the BIS working paper highlight significant uncertainty regarding the future path of economic growth and the natural rate of interest. For policymakers and businesses in Asia, where many economies are investing heavily in AI and automation, these insights are crucial.

If the 'demand bottleneck' scenario proves accurate, Asian economies might need to consider policy interventions that support consumer demand alongside technological advancement to sustain innovation. The paper suggests that without such considerations, the long-term economic benefits of AI, while initially promising, could be curtailed.

Decision-makers should monitor forthcoming data on investment-to-consumption ratios and AI adoption rates to gauge the trajectory of these scenarios, particularly as Q4 2026 economic reports begin to emerge.

This analysis is journalism, not investment advice; consult a licensed professional before making financial decisions.

Pieces are credited to the desk that commissioned and edited them. Our editorial standards, and the desks behind them, are set out on the Editorial Standards and Team pages.

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