IMF Warns of AI ‘Tsunami’ That Will Wash Away Jobs, Tax Revenue

“Love it, hate it, fear it. It is already here.” That’s not the tagline of a breakout low-budget horror film creeping into a theatre near you.

It’s how International Monetary Fund Managing Director Kristalina Georgieva describes the economic impact of artificial intelligence, which she likened to a “slow-moving tsunami” at the organization’s annual meeting on Monday. She suggested the amount of movement toward capital and away from labor that the IMF forecasts could prompt a rethink of national taxation models.

Downgraded by Growth

In July, the IMF forecast 3% global growth this year, including 2.3% growth in the US. This morning, it released an updated outlook. In the months between updates, a sustained bond sell-off made borrowing the most expensive in decades for many governments, including the US. This has led Georgieva, a Bulgarian economist, to escalate warnings to officials that they rein in spending, arguing the world’s “underwhelming” growth this decade will not be enough to relieve the increasing debt burden on its own. Public debt has almost reached 100% of global GDP, she noted last week, calling advanced economies “the worst offenders.” In calling for spending restraint, she noted central banks can only do so much, as hiking rates to stem inflation is “feeding directly into the cost of short-term debt.”

“We don’t see decisive action in the high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans, supported in some cases by upfront fiscal measures, including to take some of the pressure off monetary policy,” Georgieva said.

On the subject of growth, she also turned to the positive and negative disruption potential of AI. On the one hand, the IMF sees the demand and investment fueled by global AI spending —  which Gartner forecasts will increase 49% this year to $2.7 trillion — could significantly boost growth. For example, by 0.5% to 1% in advanced Asian economies and by 0.2% to 0.8% in emerging Asian economies. On the other, the potential disruption of the job market could demand a rethink of the entire taxation model governments are built on:

• Georgieva said the IMF estimates 40% of jobs will be “augmented, downgraded or eliminated” by AI, with that level hitting a dramatic 60% in advanced economies. Evidence is already emerging: an IMF study published earlier this year found that one in 10 US jobs require new AI or tech-related skills.
• A pivot from labor to capital on this scale would require massive changes in how governments generate revenue through taxation. It’s also aimed straight at young workers: In the US, Georgieva said demand for graduates has gone down for the first time in a century while entry-level career jobs are shrinking and low-paying jobs are increasing.

Jobs as Policy: Singapore President Tharman Shanmugaratnam, who spoke on the same panel as Georgieva, said he thinks governments need to develop incentives on par with the COVID and Great Recession eras to encourage the private sector to hire graduates and early-career professionals. These, he said, should be part of “the menu of structural policies” rather than thought of “as a crisis measure.”