Don’t worry about just your job – AI could also drive up interest rates

The boom in AI-related data centres across the country could push up interest rates as companies compete against each other and governments for workers and resources, new Treasury analysis reveals, showing an improvement in Australians’ living standards will depend on the technology.

The work, which will form part of the upcoming federal intergenerational report, finds the $US1 trillion ($1.39 trillion) effort by tech companies to build data centres just as governments ramp up their spending on everything from roads to defence systems may force central banks into tightening monetary policy.

And it warns AI-initiated cyberattacks could cruel any potential economic benefits before they can be realised.

Australia is in the midst of a data centre-building boom that Treasury estimates could be worth $150 billion, or 5 per cent of gross domestic product (GDP), by the end of the decade. There are 162 data centres already in Australia, with another 130, including some worth tens of billions of dollars, at the planning stage.

But the surge in activity has raised concerns about AI itself and what it may mean to workplaces and society. Last week, Microsoft co-founder Bill Gates used a 6000-word essay to warn the AI transition was likely to be “one of the most turbulent times in human history”.

On Monday, Defence Minister Richard Marles headed to the US for meetings with America’s top AI firms as part of a bid to secure a $21 billion deal to make Australia a second home for tech giant Anthropic.

The Treasury analysis argues that AI is different to past technological breakthroughs such as the advent of electricity or personal computers. It is likely to be a “self-developing technology” in that AI itself will lead to further advances of the technology, as well as be easily integrated into existing workplaces while also disrupting high-skilled and non-routine jobs.

But the data centre-construction boom at the heart of AI could force up the so-called “neutral” rate of interest as companies sink trillions of dollars into the sector at the same time as governments and non-tech companies carry out their own investment.

There are already signs of this occurring, particularly in the United States, where the federal budget deficit is on track to top $US2 trillion while major tech firms are borrowing hundreds of billions for their data centre projects.

“AI adoption could increase [neutral interest rates] through higher AI-related investment, increasing demand for capital and putting upward pressure on the price of capital, and higher productivity,” it said.

“Ongoing construction activity in the public sector, impacting the non-residential market and infrastructure sectors, continues to drive competition for limited resources such as labour, concrete and copper for electricals.”

Many proponents of AI believe it will supercharge productivity growth, which has slowed across the globe over the past two decades.

Treasury noted that its own forecast of productivity in Australia of 1.2 per cent over at least the next decade is predicated on the emergence of AI.

It said the adoption of AI was “crucial” to productivity improvements, arguing that if the technology was adopted broadly in high-value parts of the economy, then the boost to living standards could be higher than expected. But if it fails to be broadly embraced, the productivity boost to the economy could be relatively muted.

New jobs are likely to be created because of AI, including “prompt engineering” and “data curation”. Treasury believes there is scope for “profound effects” across the entire jobs market, including sectors once thought to be safe from AI.

“AI will not affect all workers equally. It may shift the division of labour across occupations, regions and sectors, depending on exposure, skills and capacity to adapt,” it said.

“Labour market impacts could be materially different to past waves of technology.”

Another risk posed by AI is the associated surge in the share prices of a handful of dominant tech companies which may be distorting valuations across equity markets and leave them exposed to a sharp correction.

AI could also add to the cyber threats the nation is facing.

“An AI-enabled attack on critical infrastructure or the payments system, another large-scale geo-economic crisis, or a new financial shock stemming in part from the unwinding of optimism about the future earnings of … other technology firms, that spills over to the real economy and AI-related investment, could all deliver a large, persistent negative growth shock before AI delivers its gains,” it said.

Chalmers said the government was focused on strengthening Australia’s “AI sovereignty” while also using the technology to lift overall living standards.

“We can’t just sit around and hope the benefits of AI fall into our lap – we have to reach out and take them,” he said.

“AI is shaping up to be the biggest economic transformation in our lifetime.”

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