If AI continues to disrupt, if not destroy, more and more business models, won’t that cause a recession? It might if it triggers lots of white-collar layoffs, which in turn lead to blue-collar job losses. But we aren’t too worried about this latest recession mongering, writes Ed Yardeni, editor of Yardeni QuickTakes.
Still, it might cause a credit crunch in the private credit markets. UBS Group AG has raised its private credit default forecast, with its strategists warning that losses could reach as high as 15% in a worst-case scenario, up from 13% just weeks ago, Bloomberg reported.
The bank said the increase reflects growing fears that rapid AI disruption could trigger severe stress among corporate borrowers. Technology companies, in particular, are seen as highly vulnerable to AI-driven upheaval. Current default levels in private credit are estimated at 3%–5%.
So, why not worry more? In a worst-case scenario, the Federal Reserve will quickly step in with emergency liquidity facilities to avert an economy-wide credit crunch and downturn.
Moreover, we expect that laid-off coders will be replaced with “prompters” – who can work most efficiently with AI tools to boost their companies’ productivity. We just observed that Indeed’s job postings for software developers are currently up 11% year-over-year!
