The popping of an AI-driven stock market bubble would drive the U.S. economy into recession and torpedo global growth, Fitch Ratings projects in a new report.
The rating agency published its scenario analysis that examines the likely economic fallout from a sharp decline in U.S. equity prices — which it sees as a key downside risk to its global economic forecast — finding that a major stock market correction would produce a “very sharp slowdown” in the global economy.
For instance, in a scenario where U.S. stock prices drop by 35% over six months, prices drop by 15% in other equity markets, and investor confidence is shaken, the U.S. economy would slump into recession, Fitch said.
In this scenario, U.S. GDP would decline by 0.6% in 2027, and year-over-year growth would be down by 1.5% in the second quarter of 2027, it said.
This, in turn, would spill over to much of the rest of the global economy, with countries that have strong trade ties to the U.S. taking larger hits, Fitch said. In particular, “Canada and Mexico would see an impact of more than 2% on their GDP,” it said.
In addition, world GDP growth would fall below 1% in 2027, it said.
Sharply weaker growth that translates into lower global demand and lower inflation would, in turn, allow central banks to cut rates, the report also said.
However, if financial conditions were to tighten more than expected, “the impact on GDP would be larger,” Fitch noted.