AI transformation and geopolitical shifts challenge global stability

Norges Bank Governor Ida Wolden Bache, in her annual address, outlined a global economy shaped by geopolitical tensions and the transformative potential of artificial intelligence. She emphasized the need for institutions, including Norges Bank, to adapt to these new realities.

Resilient growth defies trade turbulence

Governor Ida Wolden Bache highlighted that the global economy has shown sustained expansion despite high US tariffs, which reached interwar levels.

This resilience is attributed to exemptions, companies' ability to navigate tariff rates, and limited retaliation, primarily confined to the US and China.

Chinese exports, for instance, grew faster last year, offsetting reduced sales to the US with increased trade to other countries.

Norwegian export companies also noted increased competition from China but no major impact on their activity.

Additionally, increased defense spending in Europe and significant artificial intelligence investments in the US, particularly in software and data centers, have boosted growth.

AI optimism also fueled stock markets, contributing to household consumption growth internationally and in Norway, where rising wages and employment, alongside interest rate cuts, increased purchasing power.

The epochal shift of artificial intelligence

Artificial intelligence marks an epochal technological shift, presenting both significant opportunities and dangers.

While AI can accelerate medical research and advance clean energy, concerns persist regarding autonomous weapon systems and disinformation.

The potential productivity gains from AI are highly uncertain, with estimates varying widely, from near zero to almost eight percentage points annually.

Norway is well-positioned to leverage AI due to its knowledge-intensive service industries and high wage levels.

AI is expected to reshape the labor market, creating demand for new skills and new jobs, rather than just displacement.

Early impacts are visible in graduate job postings in sectors like banking and ICT, though overall labor market figures show no clear trace yet.

Institutions must keep pace with innovation

The impact of AI on interest rates remains highly uncertain, presenting a complex duality of potential upward and downward pressures.

Realizing AI's immense benefits demands substantial investment in data, skills, and new working methods, alongside robust institutional adaptation.

The critical challenge is for institutions to transition swiftly enough to harness these gains broadly, mitigating risks and ensuring equitable distribution of benefits.