Brutal AI selloff stirs recession fears
SPY•An AI-driven market slump could deepen a global slowdown and tip major economies into recession, the author argues. The S&P 500 is down 4% from its recent peak and the Nasdaq is down 10%; estimates suggest AI-related effects added 0.2 percentage point to growth across six advanced economies in 2025-2026.
1. AI and economic growth
AI-related effects in 2025-2026 boosted GDP growth across six advanced economies by an average of 0.2 percentage point, estimates Adam Slater of Oxford Economics. He estimates that about a third of U.S. growth of 2.4% over the same period was related to AI. The AI-fueled rise in stock prices has also lifted household wealth and supported consumer spending.
2. Risk of a downturn
A prolonged repricing of AI-related shares could reverse those wealth effects, with the impact concentrated among higher-income households, where equity ownership and consumer spending are concentrated. Goldman Sachs economists estimate positive wealth effects from AI added 0.4 percentage point to U.S. consumer spending growth over the past year, equivalent to 0.25% of GDP.
3. Growth pressures mount
The article points to weak domestic demand in China, shaky outlooks in parts of Europe, high energy prices and borrowing costs, and widening corporate borrowing spreads. Slater wrote that weak underlying growth means a serious slowdown in the AI boom would pose a substantial recession risk for advanced economies. A complete AI capital-spending bust and market meltdown are described as unlikely, but the article says investor sentiment is shifting.
