AI-driven market correction could push US into recession, global growth below 1%: Fitch

Fitch Ratings warns that a sharp correction in equity markets and a decline in AI-related investments could push the US into recession and lead to global growth falling below 1% by 2027. In their September Global Economic Outlook, the rating agency modeled a downside scenario involving a 35% drop in US equity prices, a 15% fall in non-US equities, and a confidence-driven shock to US private investment.

The results indicated a significant deterioration in economic activity, with the US economy entering recession and global growth near stagnation in per capita terms. Fitch explains that the AI boom currently provides substantial support to the US economy through increased technology capital expenditure and higher equity-market wealth driving consumer spending.

However, they caution that with highly elevated equity valuations and uncertain future profits from AI investment, equity price corrections or reduced spending on technology infrastructure could pose risks to growth. The impact would extend beyond the US, as Fitch estimates that growth in the eurozone and China would be 0.8 percentage points lower than expected in 2027 under this scenario.

Canada and Mexico, due to their close trade ties with the US, would face the most significant effects, along with economies that have robust information technology and semiconductor sectors, such as South Korea. Meanwhile, the shock could bring strong disinflationary pressure, potentially prompting the US Federal Reserve to cut interest rates by 325 basis points.

This scenario comes amid a broader outlook in which Fitch anticipates the global economy to remain resilient in 2026, raising its global GDP growth forecasts for both 2026 and 2027 to 2.6%. The downside case underscores the potential vulnerability of future growth to the sustainability of the AI investment cycle.