The Reserve Bank's chief economist has warned the global AI building boom could force interest rates to remain higher, while data centre construction shows signs of competing with the construction sector for trade workers and its demand on the energy grid could force up power prices.
Sarah Hunter, the RBA's chief economist, told a business conference in Sydney on Monday that investment in data centres had increased 10-fold over the past three years, with signs they are competing against the construction sector for trade workers. Data centre construction alone could be the equivalent of 2 per cent of GDP for the next two years, while demand on the energy grid could force up power prices.
The AI boom has caught central banks by surprise. The RBA last week forecast business investment would climb by 12 per cent this year, having forecast growth of just 0.8 per cent in May. The bank expects $115 billion to be invested across Australia in data centres by 2028, or about 2 per cent of GDP per year, excluding supporting infrastructure such as energy sources.
Hunter likened the current boom to the rollout of the internet in the late 1990s and early 2000s, a period of robust growth and higher interest rates around the world. "There is tentative evidence of this happening with AI; our estimates for the neutral rate have risen in recent years, and bond yields have increased over the past couple of months with market participants citing strong demand for capital as a key driver," she said. "Firms want to invest to take advantage of the new technology and to expand their capacity to meet faster future growth. Given this is happening globally, they'll be competing for scarce savings, pushing up interest rates."
On the question of jobs, Hunter said there was little evidence the technology had affected overall employment, but added there were signs of lower hiring among younger workers in "highly AI-exposed occupations". "In Australia, contacts in the RBA's liaison program indicate that AI has not yet impacted most firms' headcount and is not expected to over the next year," she said.
She said the benefits of AI were unlikely to be evenly distributed, with financial returns so far flowing to a small number of businesses and their equity holders. "Some workers may face a difficult period of adjustment as demand for particular roles or tasks decline, which will weigh on income and spending by some households," she said.
The RBA released four separate pieces of research on AI on Monday. One paper suggests 5.3 per cent of Australian households' financial wealth, estimated at almost $9 trillion, is invested in AI-related companies either directly or through superannuation. In late 2022, it was just 2 per cent.
In last week's US midterm elections, 40 initiatives relating to data centres were on county and state ballots. All proposals to restrict data centres succeeded.
Analysis
Why This Matters
- The AI investment boom is already affecting household costs by pushing up interest rates and electricity prices, with the RBA warning the trend could persist for years.
- The central bank is closely watching AI's impact on the labour market; while broad job losses are not yet evident, younger workers in exposed occupations are seeing reduced hiring.
- The RBA's research shows Australian household exposure to AI stocks has more than doubled in four years, via superannuation and direct investment.
Background
AI is often described as a transformative general-purpose technology, akin to railways and electricity. The RBA's chief economist compared the current wave to the internet rollout of the late 1990s and early 2000s, a period of strong growth and higher rates. Australia's productivity growth has flatlined for a decade, putting pressure on governments to find new sources of economic efficiency.
Key Perspectives
Sarah Hunter, RBA chief economist: said AI could lift productivity and transform workplaces, but the investment boom is competing for scarce capital and pushing up interest rates. She noted there is limited evidence of an AI-led productivity lift so far, but this could change as businesses reorganise operations.
RBA research papers: indicate data centre energy demand could place upward pressure on wholesale electricity prices for a time, and that some renewable energy projects are being built to meet data centre needs that may not otherwise have been viable.
What to Watch
- Whether data centre construction in Australia continues at the pace the RBA expects through to 2028.
- Upcoming RBA decisions on the cash rate, which may be influenced by sustained capital demand from the AI sector.
- Signs of labour market disruption, particularly hiring and wages in occupations identified as highly AI-exposed.
Checked
12 claims in this story checked against 1 source: 12 supported.
Show each claim
- SupportedThe RBA warned that the AI boom could keep interest rates higher.Brisbane Times - Latest News: “The AI building boom that is powering the global economy could force interest rates to remain higher , the Reserve Bank’s chief economist has warned”
- SupportedData centre demand on the energy grid could push up power prices.Brisbane Times - Latest News: “their demand on the energy grid could force up power prices”
- SupportedHunter said there was little evidence AI had affected overall employment, with signs of lower hiring among younger workers in highly AI-exposed occupations.Brisbane Times - Latest News: “Hunter said there was little evidence the technology had affected overall employment, but added there were signs of lower hiring among younger workers in “highly AI-exposed occupations”.”
- SupportedHunter said investment in data centres had increased 10-fold over the past three years.Brisbane Times - Latest News: “investment in data centres up 10-fold over the past three years”
- SupportedData centre construction alone could equal 2 per cent of GDP for the next two years.Brisbane Times - Latest News: “data centre construction alone could be the equivalent of 2 per cent of GDP for the next two years”
- SupportedHunter said: “There is tentative evidence of this happening with AI; our estimates for the neutral rate have risen in recent years, and bond yields have increased over the past couple of months with market participants citing strong demand for capital as a key driver,”Brisbane Times - Latest News: ““There is tentative evidence of this happening with AI; our estimates for the neutral rate have risen in recent years, and bond yields have increased over the past couple of months with market participants citing strong demand for capital as a key driver,””
- SupportedHunter said: “Firms want to invest to take advantage of the new technology and to expand their capacity to meet faster future growth. Given this is happening globally, they’ll be competing for scarce savings, pushing up interest rates.”Brisbane Times - Latest News: ““Firms want to invest to take advantage of the new technology and to expand their capacity to meet faster future growth. Given this is happening globally, they’ll be competing for scarce savings, pushing up interest rates.””
- SupportedHunter said RBA liaison contacts indicated AI had not yet affected most firms’ headcount and was not expected to over the next year.Brisbane Times - Latest News: ““In Australia, contacts in the RBA’s liaison program indicate that AI has not yet impacted most firms’ headcount and is not expected to over the next year,” she said.”
- SupportedHunter said: “Some workers may face a difficult period of adjustment as demand for particular roles or tasks decline, which will weigh on income and spending by some households,”Brisbane Times - Latest News: ““Some workers may face a difficult period of adjustment as demand for particular roles or tasks decline, which will weigh on income and spending by some households,” she said.”
- SupportedThe RBA forecast business investment would rise 12 per cent this year, after forecasting growth of 0.8 per cent in May.Brisbane Times - Latest News: “Last week, the RBA forecast that business investment would climb by 12 per cent this year. In May, it had forecast growth of just 0.8 per cent.”
- SupportedThe RBA expects $115 billion to be invested in data centres across Australia by 2028, or about 2 per cent of GDP per year.Brisbane Times - Latest News: “Separate research shows the bank expects $115 billion to be invested across Australia in data centres by 2028, or about 2 per cent of GDP per year.”
- SupportedA paper says 5.3 per cent of Australian households’ financial wealth, estimated at almost $9 trillion, is invested in AI-related companies; in late 2022, the figure was 2 per cent.Brisbane Times - Latest News: “One research paper suggests 5.3 per cent of Australian households’ financial wealth, which estimated at almost $9 trillion, is invested in AI-related companies either directly or through their superannuation. In late 2022, it was just 2 per cent.”