LIVE MARKETS-How a slowdown in US AI capex might impact China's economy

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HOW A SLOWDOWN IN US AI CAPEX MIGHT IMPACT CHINA'S ECONOMY

Every wobble of the AI trade brings up questions about AI investment and how long the capex boom might last.

If you ask Capital Economics, the answer is 'not that much longer.' They expect US AI investment growth to pull back in 2027, and turn negative in 2028, which they estimate will translate into a 25% drop in US imports of computers and peripheral equipment.

That shift could spell trouble for China's economy, Capital Economics warns.

"We expect weaker foreign demand for AI-related goods to knock 1.6%-pts off China’s total real export growth in 2027 relative to a counterfactual in which total and AI-related exports both continue growing at their average quarterly pace of the past two years," its economists said, with the drag rising to 3.1 percentage points the following year.

Capital Economics still expects real exports to grow at a healthy pace as demand for non-AI products continues, but the growth rate will certainly be dented.

"The hit to GDP growth will also be dampened by the fact that the electronics sector relies on more imported content than most other industries in China," the economists added.

Keeping that in mind, weaker demand for AI-related exports from China is expected to shave off around 0.2 percentage points in 2027 and 0.3% in 2028, Capital Economics estimate. Again, not catastrophic, but considerable enough.

And then there's always the chance of a more severe AI bust, which would have a more dramatic impact.

(Sophie Kiderlin)

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