Bank of America reveals "Cracks" in Developed Economies: AI "Safeguards" U.S. Economic Growth still Resilient, while many Western Countries are deeply mired in financial difficulties.

Internal data from Bank of America shows that the pace of job growth in the United States continued to slow in September, but wages increased for all income levels, with the highest income group seeing the most significant increase. Economists Claudio Irigoyen and Antonio Gabriel stated in a report released on October 10 that the wage increases, combined with robust consumer spending, further confirmed their view that despite a cooling labor market, the US economy still has resilience. The data also indicated that while higher-income households are faring better, spending by middle and lower-income groups is also increasing, providing support for overall consumer stability. The economists wrote in the report, "The current rebalancing of the labor market is largely driven by supply-side changes resulting from tightening immigration policies, rather than a signal of overall economic weakness." They added that if the Federal Reserve were to adopt overly aggressive monetary policies, it could face the risk of excessive demand stimulation. Political deadlock worsens in France In Europe, Bank of America economists warned that the current political crisis in France stems from President Emmanuel Macron's struggles to push budget measures through, making it "impractical" to reduce the fiscal deficit to below 5% of GDP. Despite Macron's expected appointment of a new prime minister to avoid new elections soon, the Bank of America team lacks confidence in any outcome that could achieve long-term fiscal stability. Irigoyen and Gabriel predicted that even with the formation of a centrist coalition government, France's fiscal deficit as a percentage of GDP will remain around 5% in 2026; unless there is a major shock, there is very limited room for fluctuations in this percentage. They said, "While the risks of new elections and greater short-term economic volatility have decreased, they remain elevated." UK faces fiscal space contraction dilemma Bank of America predicts that the UK government's Autumn Budget, to be announced on November 26, may show a reduction of 20-30 billion in fiscal space. Analysts expect Chancellor Jeremy Hunt to offset the funding gap with multiple, relatively small tax measures that will not trigger inflation, to avoid implementing significant spending cuts that could provoke political backlash. However, they also warned that violating fiscal rules could lead to negative reactions in the UK bond market, so a "balanced and constrained" policy path is most likely to be the final choice. In addition, previous concentrated fiscal adjustments may slightly drag on economic growth in 2026 and impact the Bank of England's interest rate policy direction. Policy shift to monetary easing after Japanese election Bank of America's analysis points out that the new Japanese Prime Minister Sanae Takaichi has brought a new "monetary and fiscal easing atmosphere." She defeated the previously favored Koizumi in the election, leading to a rapid depreciation of the yen by 4%. Takaichi supports an expansionary fiscal policy, and the economic stimulus she implements may exceed that of her predecessor, although the specific scale is still uncertain. Despite Takaichi's loose stance, Bank of America still expects the Bank of Japan to maintain a gradual tightening path: the next rate hike is expected in January 2026, with hikes about every six months thereafter. Investment in artificial intelligence injects momentum into US growth In another analysis, Bank of America economists point out that the artificial intelligence (AI) boom remains a major driver of investment in the United States. In the first half of 2025, contributions from AI-related areas such as software, computer equipment, and data centers to quarterly GDP growth were about 1.5 percentage points. Despite the phenomenon of "tariff pre-positioning" (businesses increasing imports to avoid future higher tariffs) making the situation complex, analysts believe that AI-driven capital expenditures will continue to be a long-term structural positive factor. Large technology companies such as Microsoft Corporation, Amazon.com, Inc., Alphabet Inc. Class C, and Meta are expected to increase their capital spending by 18% next year, with estimated contributions to GDP growth of 0.3 percentage points. Although there are concerns that AI could lead to job losses, Bank of America has not yet found evidence of widespread unemployment. In fact, in white-collar industries with high AI application rates, employment growth is even stronger. Economists wrote in the report, "At least for now, AI is more of a driver of capital spending rather than a destroyer of jobs." Outlook: Collision of fiscal pressures and technological resilience Bank of America's Global Letter emphasizes that the gap between the fiscal vulnerability of major developed economies and the structural resilience of private sector investment is continuously widening. While France, the UK, and Japan are still grappling with fiscal constraints, the US economy continues to exceed "slowing expectations" - largely due to wage growth momentum, consumer resilience, and accelerated deployment of artificial intelligence.