New Delhi [India], September 28 (ANI): A sharp correction in equity markets combined with a pullback in artificial intelligence (AI)-related investment could push the US economy into recession and drag global growth below 1 per cent in 2027, Fitch Ratings said in its September Global Economic Outlook.

Fitch modelled a downside scenario involving a 35 per cent decline in US equity prices, a 15 per cent fall in non-US equities and an additional confidence-driven shock to US private investment.

The rating agency said the results of the scenario pointed to a significant deterioration in economic activity, with the US economy entering recession and global growth coming close to stagnation in per capita terms.

"We looked at the impacts of a 35% decline in US equity prices accompanied by a 15% fall in non-US equities and an additional confidence-induced shock to US private capex. The results of this 'What-if?' analysis showed the US economy entering recession - with GDP down by 0.6% in 2027 - and global growth falling below 1%, close to stagnation or recession in per capita terms," the report said.

The rating agency said the AI boom is currently providing significant support to the US economy through rapid growth in technology capital expenditure and, indirectly, through higher equity-market wealth that is supporting consumer spending.

"The AI boom is providing a lot of support to the US economy," Fitch said, adding that some measures of equity valuations appeared highly elevated and future profits from AI investment remained uncertain.

The report said these factors create risks to economic growth if equity prices correct sharply or companies reduce spending on technology infrastructure and other AI-related investments.

The impact would not be limited to the US. Fitch estimates that growth in both the eurozone and China would be 0.8 percentage point below its baseline forecast in 2027 under the scenario.

Canada and Mexico would face the biggest impact because of their strong trade links with the US, while economies with large information technology and semiconductor industries, including South Korea, would also be affected.

At the same time, the shock would generate strong disinflationary pressure, prompting the US Federal Reserve to cut interest rates aggressively by 325 basis points in Fitch's scenario.

The downside scenario comes against a broader outlook in which Fitch expects the global economy to remain resilient in 2026. The agency has raised its global GDP growth forecast for 2026 to 2.6 per cent from 2.4 per cent earlier, while retaining its 2027 and 2028 forecasts at 2.5 per cent and 2.6 per cent, respectively.

Fitch also noted that US private-sector investment is currently being supported by the AI capital expenditure build-out, with its US growth forecasts for both 2026 and 2027 raised to 2.1 per cent. The downside scenario therefore highlights the potential sensitivity of future growth to the sustainability of the AI investment cycle. (ANI)