Bank of America reveals the "cracks" in developed economies: AI "safeguards" the resilience of U.S. economic growth, while many Western countries' finances are mired in gloom
The Bank of America report shows that although job growth in the U.S. slowed in September, wages increased across all income levels, especially among high-income groups. Economists believe the U.S. economy remains resilient, with stable consumer spending. Meanwhile, France is facing a fiscal crisis, struggling to pass its budget proposal, with an expected fiscal deficit of around 5% of GDP. The fiscal space in the UK is also shrinking, with the autumn budget expected to show a reduction of £20 billion in fiscal space
According to internal data from Bank of America, the growth rate of employment in the U.S. continued to slow in September, but wages across all income levels increased, with particularly significant wage growth among high-income groups. Economists Claudio Irigoyen and Antonio Gabriel pointed out in a report released on October 10 that the combination of rising wages and robust consumer spending further supports their view that, despite a cooling labor market, U.S. economic growth remains resilient.
The data also showed that while high-income households are in a better position, spending among middle- and low-income groups is also increasing, providing support for overall consumption stability.
The two economists wrote in the report: "The current rebalancing of the labor market is largely driven by supply-side changes due to tightened immigration policies, rather than signals of overall economic weakness." They added that if the Federal Reserve adopts overly aggressive easing policies, it may face the risk of excessive demand stimulation.
French Fiscal Stalemate Continues to Worsen
In Europe, Bank of America economists warned that the current political crisis in France stems from President Emmanuel Macron's difficulty in pushing the budget proposal through, making it "unrealistic" to reduce the fiscal deficit to below 5% of GDP. Although Macron is expected to appoint a new prime minister soon to avoid a new round of elections, the Bank of America team lacks confidence in any outcome that could achieve long-term fiscal stability.
Irigoyen and Gabriel predict that even if a centrist coalition government is formed, the ratio of France's fiscal deficit to GDP will remain around 5% by 2026; unless a significant shock occurs, there is very limited room for fluctuations in this ratio.
They stated: "The risks of new elections and greater volatility in the economic path in the short term have decreased, but remain high."
UK Faces Shrinking Fiscal Space Dilemma
Bank of America predicts that the autumn budget announcement by the UK government on November 26 may show that the country's fiscal space will shrink by £20 billion to £30 billion. Analysts expect that Chancellor Jeremy Hunt will implement several smaller tax increases that will not trigger inflation to cover the funding gap, in order to avoid significant spending cuts that could provoke a political backlash.
However, they also warned that violating fiscal rules could trigger negative reactions in the UK bond market, so a "balanced and constrained" policy path is most likely to become the final choice. Additionally, the previously concentrated fiscal adjustments may slightly drag on economic growth in 2026 and affect the direction of the Bank of England's interest rate policy.
Japan Shifts to Policy Easing After Election
Japan's new Prime Minister Sanae Takaichi has brought what Bank of America describes as a "new atmosphere of fiscal and monetary easing." She defeated the previously favored Shinjiro Koizumi in the election, after which the yen quickly depreciated by 4%. Takaichi supports expansionary fiscal policies, and the scale of the economic stimulus she implements may exceed that of her predecessor, although the specific scale is still uncertain Despite Takami Koishi's dovish stance, Bank of America still expects the Bank of Japan to maintain a gradual tightening path: the next rate hike is expected in January 2026, followed by approximately one hike every six months.
Artificial Intelligence Investment Injects Momentum into U.S. Growth
In another analysis, Bank of America economists pointed out that the AI boom remains a major driver of investment in the United States. In the first half of 2025, AI-related fields such as software, computer equipment, and data centers are expected to contribute approximately 1.5 percentage points to U.S. quarterly GDP growth.
Although the phenomenon of "tariff front-loading" (companies increasing imports in advance to avoid higher future tariffs) complicates the situation, analysts believe that AI-driven capital expenditure will still be a long-term structural positive factor. Hyperscale technology companies such as Microsoft (MSFT.US), Amazon (AMZN.US), Google (GOOGL.US), and Meta (META.US) are expected to increase capital expenditures by 18% next year, with an estimated contribution of 0.3 percentage points to GDP growth.
Despite concerns that AI may lead to job losses, Bank of America has not yet found evidence of large-scale unemployment. In fact, employment growth has been stronger in white-collar industries with higher AI application rates. Economists wrote in the report: "At least for now, AI is more a driver of capital expenditure than a destroyer of jobs."
Outlook: The Collision of Fiscal Pressure and Technological Resilience
Bank of America's Global Letter emphasizes that the gap between the fiscal vulnerabilities of major developed economies and the structural resilience of private sector investment is widening. France, the UK, and Japan are still grappling with fiscal constraints, while the U.S. economy continues to exceed "slowdown expectations"—largely due to wage growth momentum, consumption resilience, and the accelerated advancement of AI applications
