AI: The future we can’t escape

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Today on The Daily Brief:

• AI: Hype, Hope, and Reality
• Global trade
• RBI Governor on Inflation, Debt, Tech & The Future of Central Banks

AI: Hype, Hope, and Reality

AI isn’t exactly a new thing—it’s been around for years. But what’s different now is how quickly everything is changing. If things keep moving this fast, we’re going to see major shifts in industries and even in our everyday lives.

Imagine AI doctors diagnosing diseases faster and more accurately than ever before, or AI tutors offering personalized lessons to millions of people. There’s even talk of AI solving big problems that scientists have struggled with for decades! People are saying AI could help tackle huge global challenges like climate change and poverty. It almost sounds like something out of science fiction, but some AI leaders believe this future isn’t that far away.

This brings us to the real reason we wanted to talk about this today. Dario Amodei, the CEO of Anthropic (the company behind the popular AI platform Claude), recently wrote an essay that’s caught a lot of attention. His predictions are pretty bold, and if even a part of them come true, the world we know today could look very different soon.

Amodei has an optimistic view, but he also stresses the risks. He says managing those risks is the most important thing if we want to fully unlock AI’s potential. Without careful development, these powerful systems could become dangerous, and that’s why he thinks we need to focus on safety first.

In healthcare, he predicts AI could eliminate most cancers, prevent genetic diseases, and even extend human life expectancy—maybe even up to 150 years! He believes the medical breakthroughs we’d expect to happen over the next century could be squeezed into just ten years thanks to AI.

It’s not just health where he sees big changes. His economic predictions are surprising, too. He talks about developing countries seeing 20% annual GDP growth, which is double what we saw during China’s massive economic boom. According to him, AI could help sub-Saharan Africa reach China’s current economic level in just 5-10 years. That’s the kind of change that usually takes generations, happening in just a few years!

One of his more unusual ideas is AI taking over economic policy—AI finance ministers and central bankers making decisions better than human experts.

But it’s worth stepping back and asking ourselves, are these visionary ideas, or are we getting into a bit of techno-fantasy?

If you remember the rise of the internet, you’ll know we heard some big promises back then too. Sure, the internet has had a massive impact, but it didn’t fix every problem. AI will definitely shake things up, but expecting it to solve geopolitical challenges or end corruption in a few years might be a bit too hopeful.

Even if we do see these amazing advances, there are real risks to consider. Amodei talks about the dangers of job loss and rising inequality. So, the real question is: are we ready for the massive societal changes that could come from such rapid technological progress?

It’s exciting to think about these possibilities, but we need to keep in mind the real-world challenges that come with them.

What’s interesting is that Amodei isn’t the only one making big claims. Other tech leaders are getting in on it too. Sam Altman, the CEO of OpenAI, has predicted superintelligent AI—an AI smarter than humans—in less than a decade. That’s a bold claim!

Then you’ve got Mustafa Suleyman, who’s leading AI projects at Microsoft. He envisions AI companions that will help with everything, from work tasks to our personal well-being.

But not everyone is so convinced. Yann LeCun, Meta’s chief AI scientist, recently said that current AI is still “dumber than a house cat” and that it might be decades before we get AI with common sense or human-like intelligence. He believes throwing more data and computing power at the problem isn’t enough to solve it.

The big thing here is that these predictions aren’t just about the future. They’re also influencing policymakers, investors, and the general public. Amodei’s essay could be seen as a call for more support and investment in AI. Altman and Suleyman might be trying to position their companies as leaders in the race to create Artificial General Intelligence (AGI). On the other hand, LeCun’s cautious view might be about managing expectations and keeping Meta in the AI game for the long haul.

So, who’s right? The truth is, no one really knows. AI development has been moving surprisingly fast, but we’ve also seen plenty of tech bubbles before.

What’s clear is that the conversation around AI is just getting started, and we’ll have to wait and see how much of these visions become reality.

Global trade

Let’s take a look at what’s happening in global trade right now. The latest numbers from the World Trade Organization (WTO) give us a good idea of where things stand and what might be coming next. Why should we care? Well, trade is more than just countries swapping goods—it’s one of the biggest drivers of economic growth and affects things like job creation and the cost of living. When global trade changes, it can have a huge impact on our everyday lives.

What’s Happening with Trade Growth in 2024?

The WTO has updated its forecast for merchandise trade in 2024, predicting it will grow by 2.7%. That’s a small bump from the previous estimate of 2.6%, but still, it’s not huge.

Source: WTO

So, what’s behind this small improvement?

It mainly comes down to regional differences. Trade in Asia has been stronger than expected, with big exporters like China and Vietnam doing well. This has kept global trade moving forward. Meanwhile, Europe is struggling a bit. Germany, Europe’s manufacturing hub, saw its purchasing managers’ index (PMI) hit a 12-month low in September, showing that its manufacturing sector is shrinking. So, while Asia is helping global trade grow, Europe is slowing things down.

Source: WTO

If we zoom out a little, we see that global merchandise trade volumes went up by 2.7% in the first half of 2024. But when we look at the value of trade, it’s almost flat, with just a 0.1% increase. Why the difference? It seems that prices for exports and imports have dropped by around 2.6%, probably due to weaker demand and changes in supply chains.

On the other hand, services are doing much better. Trade in commercial services went up by 8% year-on-year in the first quarter of 2024. Travel services, in particular, surged by 19% as more people started traveling again. This rise in services is helping balance out the slower performance of goods. So, while demand for physical products may have dipped a bit, people are spending more on services like travel and business services.

How Are Different Regions Doing?

Let’s break down which regions are driving these trends.

• Asia is leading the way, with expected GDP growth of 4% in 2024. China and Vietnam are seeing a big boost in exports, which is helping the region move forward.
• The United States is also holding up well, with 3% growth in the second quarter of this year, thanks to strong consumer demand.
• Europe, however, is a different story. Economic growth is slow, at just 1.1%, and Germany is having a tough time. Its manufacturing sector continues to shrink, dragging down the region’s performance. It’s not just Europe struggling though—Argentina’s economy shrank by more than 8% in the first quarter of 2024. The gap between high-performing regions like Asia and struggling ones like Europe and Argentina is becoming more noticeable.

Source: WTO

What Risks Are Ahead?

Of course, these projections come with risks. The WTO points out a few key concerns:

1. Geopolitical Tensions: Conflicts, like the unrest in the Middle East, could disrupt global shipping lanes, especially in the Red Sea. We’ve already seen attacks on commercial ships, forcing them to take longer routes, which adds time and cost to deliveries. If things get worse, energy prices could rise, adding more uncertainty.
2. Trade Fragmentation: Global trade is becoming more divided as countries start aligning their supply chains based on political alliances. This trend has become more noticeable since the war in Ukraine, and it’s leading to a more fractured trade landscape.

The Rise of "Connector Countries"

Despite these challenges, some countries are finding new opportunities. Nations like Vietnam and Mexico are becoming crucial links in global supply chains. As companies try to rely less on China, these countries are benefiting. For example, Mexico saw its exports to the U.S. grow by over 9% in the first half of 2024. Its closeness to the U.S. and its role in North American trade networks make it an attractive choice for businesses looking to diversify.

Similarly, Vietnam saw a 16% jump in exports during the same period as companies shifted supply chains to avoid putting all their eggs in one basket. Both Mexico and Vietnam are becoming key players in the changing global trade scene.

30 Years of the WTO: What’s Changed?

This year marks the 30th anniversary of the WTO, which was created through the Marrakesh Agreement in 1994. One of the main goals back then was to make sure developing economies got a fair share of global trade. So, how has that played out?

There’s been a lot of progress. Since 1995, income levels in low- and middle-income countries have nearly tripled, and global per capita income has grown by about 65%. The number of people living below the poverty line in these countries has dropped from 40% in 1995 to just 11% today. When it comes to trade, these economies have doubled their share of global exports—from around 16% to 32%.

We’ve also seen trade costs drop by 8% globally between 1995 and 2020, with low-income countries benefiting the most. This helped narrow the income gap between low- and high-income countries. Trade between low- and middle-income economies has also shot up, growing from 5% of global trade in 1995 to almost 20% in 2022. At the same time, trade between high-income economies has fallen from over half of global trade in 1995 to just 32% in 2022.

What’s Next for Global Trade?

The last 30 years have shown us how powerful trade can be in driving economic growth and reducing poverty. But the road ahead isn’t so clear. With rising geopolitical tensions and the risk of trade fragmentation, holding on to the gains of the past few decades might become tougher.

Countries that can adapt to these changes—like Vietnam and Mexico—may find themselves in stronger positions as global trade continues to evolve. But, as always, the global economy is unpredictable, and how well countries and businesses navigate these challenges will determine the future of international trade.

Looking ahead, it’s clear that trade will keep shaping economies around the world, but the way it works is shifting. These shifts will have big implications for countries, businesses, and consumers alike.

RBI Governor on Inflation, Debt, Tech & The Future of Central Banks

Shaktikanta Das, the Governor of the Reserve Bank of India, recently gave a speech on how central banks are evolving. He focused on three key areas: monetary policy, financial stability, and new technologies. These are important topics for investors like us to keep an eye on, so let’s break down what he said and why it matters.

Inflation and Monetary Policy

First, let’s talk about inflation. For years, central banks believed they had it under control. After the high inflation of the 1970s and 80s, the decades that followed saw stable growth, and the assumption was that inflation would stay low. But that idea was shaken after two major events: the 2008 financial crisis and the COVID-19 pandemic.

Both of these crises forced central banks to take drastic actions. They had to cut interest rates to nearly zero and inject a lot of money into the economy just to keep things from collapsing. While Das agreed that these measures were necessary, he pointed out that they’ve also caused new problems. Some central banks now hold so much debt that it could start affecting their independence.

Source: Trading Economics

This is a big deal because central banks need to make decisions without political pressure. If they’re too tied up in debt, it might limit their ability to act freely. However, Das mentioned that India handled things a bit differently. India set clear end dates for its emergency measures, which helped reduce long-term damage. Still, rising public debt is a global concern, and managing it is becoming a bigger challenge for central banks. This limits what they can do to control inflation or deal with future crises.

Financial Stability

Das also spoke about financial stability, another core responsibility of central banks. During both the 2008 crisis and the pandemic, central banks pumped large amounts of money into the system to prevent a collapse. But this had an unintended consequence—people and businesses started taking on more risks because money was so cheap and easy to borrow.

Now, with inflation making a comeback, central banks have been forced to raise interest rates quickly. But when you raise rates after a long period of low borrowing costs, problems start to emerge. In 2023, some countries even saw banking crises because of this. The challenge now is that different countries are reacting in different ways—some are tightening their policies, while others are loosening them. This creates a lot of uncertainty because no one is sure which approach will work best.

Das also raised concerns about the rapid growth of private credit markets, which are less regulated. These markets have grown significantly, and if they run into trouble, they could cause serious instability because they aren’t watched as closely as traditional banks.

New Technologies in Finance

Finally, Das talked about technology, which is one of the most exciting areas for central banks right now. Technology, especially in payments, is changing the financial world. He used India’s Unified Payments Interface (UPI) as an example. UPI has made digital payments faster and more efficient, and Das believes this kind of technology could be a game changer for international payments, especially for remittances. He also mentioned central bank digital currencies (CBDCs), which India is working on. According to Das, CBDCs could change how global payments work by making them faster and more secure.

However, with new technology comes new risks. Das reminded everyone that rumors can spread quickly on social media, which can cause panic and liquidity issues for banks. Another risk is the growing power of big tech companies. While AI and machine learning offer new possibilities, there’s a risk that a few large companies could gain too much control over financial systems, which could create new vulnerabilities.

Das wrapped up by saying that central banks have done a good job managing inflation and preventing major crises so far, but they need to stay alert. The challenges ahead are real, but by embracing new technologies and managing risks carefully, central banks can keep the economy stable and growing.

In short, central banks are in a tricky spot right now. They have to balance controlling inflation, maintaining financial stability, and staying ahead of fast-moving tech developments. How well they handle this balancing act will play a big role in shaping the future of the global economy.

Tidbits

1. Reliance Industries is in talks to acquire a stake in Dharma Productions, aiming to expand its media presence. This could boost Reliance’s content offerings and strengthen its position in India’s entertainment industry.
2. India has become the second-largest supplier of restricted technologies to Russia, with exports exceeding $95 million in July 2024. This poses a challenge for Western sanctions as India tries to balance its ties with both Russia and the West.
3. India and Sri Lanka are finalizing a $5 billion road-rail project that will link Tamil Nadu with Sri Lanka. This project is expected to boost trade, tourism, and investment while countering Chinese influence and improving regional connectivity.
4. Noel Tata has been appointed chairman of Tata Trusts, marking a significant leadership shift. His role, alongside Tata Sons chairman N. Chandrasekaran, will help guide the company through challenges in AI, semiconductors, and revitalizing TCS.
5. SpaceX has successfully completed its fifth Starship test flight, a big step toward reusable space travel and Elon Musk’s goal of colonizing Mars. This milestone is also crucial for NASA’s Artemis program.

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This post was first published on Substack .