In that case, the question for New Zealand is, can our economy avoid the worst of the fallout?
This week, The Economy of Everything podcast assesses the risk.
After two years of stalled recovery, following the US tariff shock and then the oil price spike from the Iran conflict, a major market meltdown would be disastrous for our beleaguered economy.
“We’ve had a big warning from the Bank of International Settlements saying that big tech’s AI spending spree risks ending in a prolonged investment bust that could rattle our financial markets and damage the global economy,” Tamsyn Parker said.
Huge volumes of money have been poured into AI tech companies and satellite launching companies (like SpaceX) on the premise that they are going to be dominant in the global economy in the future, Liam Dann said
“But as we saw in the .tech wreck of 2000, timing is everything. Maybe AI is going to change the world, but if it doesn’t really change the productivity and profitability of ordinary companies for another three or four years, that’s plenty of time for a massive stock market meltdown.”
There were also concerns about the extent to which the major tech companies were all investing and reinvesting in each other, Parker said.
“As we’ve seen in past market meltdowns, the more interconnectivity there is, the more likely we see a domino effect.”
But could New Zealand escape the worst of a Wall Street crash?
Dann argues that the tech sector doesn’t run as deep into the global economy as banking did during the 2008 global financial crisis.
“I do think there’s a bubble, there’s going to be a correction, but what I’m wondering about is why it will necessarily destroy the global economy?” he said.
“In the GFC, it was the banking sector, and it was the finance sector that was going down, and that was like the floor of everything, the fundamentals.”
But Parker isn’t convinced, pointing out the New Zealanders now have much greater exposure to the US tech sector via KiwiSaver.
We have $140 billion invested in KiwiSaver. With roughly 30% in US shares, that meant “any Wall Street wobble” flows through to ordinary New Zealanders, she said.
“I get that our KiwiSavers will look bad if the stock market collapses, but that is going to happen every 10 years or so,” Dann said.
“Maybe it would be a good thing if we all paused a bit on AI and if things slowed down a bit?”
This week, Parker and Dann also discuss Kiwibank’s big call (that the Reserve Bank should keep the Official Cash Rate on hold all year), and they take a look at the reasons for the big slump in the Kiwi dollar last month.
Listen to the full episode for the full conversation.
The Economy of Everything is available on the iHeart app or wherever you get your podcasts.
The series is hosted by Liam Dann, business editor-at-large and Tamsyn Parker, business editor for the NZ Herald. Thanks to CMC Markets.