AI may enhance productivity but pose displacement risks in emerging markets: Moody's Ratings
Moody's Ratings, in its Global Emerging Markets outlook 2027 report, has said that Artificial intelligence (AI) could enhance productivity but also create displacement risks in emerging markets (EMs) with significant exposure to software, information technology (IT) and business-process outsourcing (BPO) sectors. However, it said AI's impact on jobs and productivity is not yet clearly visible in India. It said for most emerging markets, inadequate access to computing capacity, digital infrastructure and skills could increasingly determine their ability to capture AI-related gains.
Moody's expects GDP growth for the largest EMs in 2027 to remain broadly in line with 2026 levels, with some potential upside depending on a potential easing of the Middle East conflict. Moody's has already revised India’s FY27 growth forecast upward to 7 per cent from 6.5 per cent led by broad-based economic momentum and energy supply shock resilience. It said continued commodity demand will remain a key growth driver for some metal and energy producers, although overall growth will be slow and vary considerably by country. It said resilient consumer spending, supported by favourable government policies, and strong foreign direct investment (FDI) inflows will also contribute to growth in several emerging markets.
According to the report, for EMs with significant levels of software or IT and business-process outsourcing exposures, AI could both raise productivity and create displacement risks. But even for India and the Philippines - the potentially most-exposed EM countries - there is no current clear illustration of either trend. Moody's said most EM sovereigns will stabilise their debt, offsetting the increase in interest rates, through contained spending, revenue raising measures or both. The fiscal space for policy responses to further shocks, such as the potential impact of a record El Nino, may however be constrained due to rigid spending structures. It added that some of the larger EM sovereigns will choose to keep their spending above revenues which, along with higher interest costs, will increase their debt.
