Citibank: The risk of AI disruption is real, but the timing is "very uncertain"

Investing.com - Citi strategists say that artificial intelligence may become an important macro force over time, but the timing of any disruption to the labor market remains highly uncertain.

In a report released on Friday, Dirk Willer’s team stated: “While we believe AI is ultimately likely to lead to higher unemployment and deflation, the timing is very unclear.” This uncertainty points toward a dovish policy stance, with Citi indicating that risks “lean toward lower federal funds rates rather than higher ones.”

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The strategists note that the debate has shifted from whether AI investment is excessive to how quickly the technology might disrupt white-collar employment. While Citi admits concerns have increased following rapid advances in generative AI, the bank says current labor data still show limited widespread impact, with indicators suggesting the labor market is “performing quite well.”

“Basically, early-career programmers and customer service jobs are weak, but beyond that, it’s hard to find much evidence in the data,” the strategists wrote.

Looking ahead, the team warns that implementation frictions—including regulatory hurdles, corporate adoption barriers, and energy constraints—could slow the pace of real-world substitution.

Although AI capabilities could increase exponentially, strategists believe cross-company deployment will be “more linear,” thus delaying macroeconomic impacts.

Energy constraints remain a key limiting factor for AI adoption, Citi strategists say, and at current supply levels, “it’s unlikely that AI will replace a large portion of white-collar jobs worldwide.”

As long as this bottleneck persists, they believe demand for human labor will continue. However, over time, efficiency gains and investments in energy systems could ease this restriction—though strategists note that “this process may take time.”

In the long term, the team envisions a scenario where strong productivity growth coexists with rising unemployment and falling prices, especially if income gains from AI remain highly concentrated among a relatively small AI elite. In this context, they believe central banks should maintain a dovish stance over time.

Risks faced by different countries vary greatly. Citi points out that the U.S. and the UK are among the most vulnerable developed markets due to their high reliance on white-collar service employment. Among emerging markets, Israel, South Korea, and Central and Eastern Europe appear more susceptible to impact.

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