Brutal AI selloff stirs recession fears
SPY•An AI-driven stock market slump could deepen a global slowdown and tip several major economies into recession. The S&P 500 is down 4% from its recent peak and the Nasdaq 10%, while Oxford Economics estimates AI-related effects boosted growth across six advanced economies by an average of 0.2 percentage point in 2025-2026.
1. AI and economic growth
AI-related effects boosted GDP growth across a sample of six advanced economies by an average of 0.2 percentage point in 2025-2026, Oxford Economics estimates. Without those effects, underlying growth was around 0.5%-1.0% a year; about a third of US growth of 2.4% over the same period was related to AI, the firm estimates.
2. Wealth effect risks
High stock prices have lifted US household net wealth, with stocks now accounting for almost 47% of household financial assets and 34% of total assets, both record shares. Goldman Sachs estimates that positive wealth effects from AI added 0.4 percentage point to US consumer spending growth, or 0.25% of GDP, over the past year. A prolonged market downturn could erase that boost.
3. Growth risks mount
The article cites weak domestic demand in China, shaky prospects in several European economies, high energy prices and borrowing costs, and widening corporate borrowing spreads. Oxford Economics' Adam Slater said the risk of advanced economies entering recession would be substantial if the AI boom seriously slowed. The article says a total AI capital expenditure bust and complete market meltdown are unlikely, but investor sentiment is shifting.
