Fitch Ratings warns of US recession risk amid AI-driven market disruption

Fitch Ratings has released a scenario analysis warning that a major disruption in equity markets, specifically linked to artificial intelligence (AI) and a reduction in capital expenditures, could trigger a recession in the United States. The model suggests that a 35% drop in US stock prices over six months could lead to a 0.6% contraction in US GDP by 2027 and a significant reduction in private capital expenditures.

This downturn would likely impact global growth, potentially causing global GDP growth to fall below 1.0% by 2027. Economies such as China and the eurozone could see growth reductions of 0.8 percentage points, while countries with close ties to the US, like Canada and Mexico, could see GDP decreases exceeding 2%.

Separately, global investors are reducing exposure to Indian equities due to high valuations, weaker corporate earnings, and limited opportunities within the AI boom. Foreign portfolio ownership on India’s National Stock Exchange has fallen to a 17-year low, with investors having withdrawn approximately $25 billion from Indian stocks this year. This shift has resulted in India’s share of the MSCI Emerging Markets Index declining from roughly 16% to 11% over the past year.