A sharp reversal in the artificial intelligence investment boom could push the US into recession in 2027 and leave the global economy close to stagnation, according to a scenario modeled by Fitch Ratings.

The ratings agency said a 35% decline in US share prices over six months, accompanied by a 15% fall in overseas equities and a sharp reduction in business investment, could cause US gross domestic product (GDP) to contract by 0.6% in 2027. Global growth would fall below 1%, compared with Fitch’s central forecast of 2.5%.

The findings, published in Fitch’s September Global Economic Outlook and an earlier 14 September scenario analysis, examine how a correction in AI-related investment could spread through financial markets and the wider economy.

Fitch stressed that the scenario is not its central forecast. It expects the US economy to expand by 2.1% in both 2026 and 2027, supported partly by continued investment in AI infrastructure and relatively resilient consumer spending.

The analysis follows a period of heavy spending on data centers and computing infrastructure, with technology companies committing substantial amounts of capital to develop increasingly advanced AI systems.

That investment has become an important source of US economic growth. Rising technology stocks have also increased household wealth, helping support consumption even as real income growth has weakened.

Fitch warned that elevated equity valuations and uncertainty about the future profitability of AI investments leave the economy exposed to a simultaneous decline in share prices and corporate spending.

A stock market correction would reduce household wealth and weigh on consumption. Companies could also postpone or cancel investments if expectations for AI-related returns deteriorate.

US investment could fall sharply

Fitch developed its adverse scenario using Oxford Economics’ Global Economic Model, examining the consequences of falling equity prices and a separate shock to business confidence. Under those assumptions, US private capital spending would decline by more than 6%, while year-on-year GDP growth would fall to -1.5% in the second quarter of 2027.

The projected recession reflects the combined effects of weaker consumption and investment, rather than the stock market decline alone. AI spending has become increasingly intertwined with the broader US economy. The construction of data centers, purchases of computing equipment and associated infrastructure investment have supported economic activity.

At the same time, gains in technology shares have helped sustain household spending. A reversal in both would remove two sources of support at once. Fitch had already identified the risk of an AI-related market correction in its July Global Risk Outlook.

In that assessment, the agency pointed to the scale of technology investment and uncertainty over whether future earnings would justify current valuations. The September exercise attempts to quantify the economic consequences of a more severe reversal.

Global growth could slip below 1%

The consequences would extend beyond the US. Fitch estimates that global economic growth, measured using its Fitch-20 grouping of major economies, would fall below 1% in 2027 under the adverse scenario.
That would leave the world economy close to stagnation, with output per person potentially contracting.

China and the eurozone would each experience growth 0.8 percentage point below Fitch’s central forecasts. Canada and Mexico would face particularly large effects because of their extensive trade relationships with the US. Fitch’s modeling indicates that the impact on their GDP would exceed 2%.

India could also face pressure, particularly through its technology services industry. According to the Reserve Bank of India’s latest survey, the US accounted for 54.1% of India’s software services exports in 2025-26, up from 52.9% a year earlier. Exports to the US rose 11% to $119.7 billion, making it India’s largest market for software services.

A US recession accompanied by cuts in technology spending could weaken demand for Indian IT services if American companies postpone projects or reduce discretionary expenditure. Fitch has not quantified the impact of its adverse scenario on India, however.

India’s expanding AI infrastructure industry presents another potential exposure. According to an EY-IVCA report published in July, data centers and allied sectors attracted approximately $45.3 billion in investments and investment commitments across 86 deals between 2021 and June 2026. A prolonged pullback in global AI spending could affect financing and expansion plans, although projects serving domestic demand would not necessarily face the same pressures.

Other economies exposed to global technology investment and semiconductor demand could also experience weaker activity. Fitch has separately identified South Korea as an economy benefiting from the expansion in global IT spending.

Fed could cut rates aggressively

Fitch’s adverse scenario also envisages a substantial monetary policy response. As economic activity weakens and demand falls, inflationary pressure would ease, allowing the Federal Reserve to reduce interest rates by a cumulative 325 basis points.

Such cuts would ordinarily help support borrowing, investment and household spending. However, Fitch cautioned that a more severe tightening of financial conditions could deepen the downturn. Its additional modeling shows that if US government bond yields and emerging-market bond spreads remained 100 basis points above the levels assumed in the initial scenario, US GDP would suffer a further 0.5% shortfall over four quarters. One basis point is one-hundredth of a percentage point.

The corresponding additional impact on global GDP would be 0.2%. This suggests that the Federal Reserve’s ability to cushion a downturn could depend partly on whether borrowing costs respond to monetary easing as expected.

Despite the risks identified in its modeling, Fitch has become more optimistic about near-term economic growth. In its September outlook, the agency raised its global GDP growth forecast for 2026 by 0.2 percentage point to 2.6%. It retained its projections of 2.5% for 2027 and 2.6% for 2028.

Its US growth forecasts for both 2026 and 2027 were raised by 0.2 percentage point to 2.1%, reflecting stronger consumption and continued investment in AI infrastructure. Fitch also acknowledged that the global economy has proved resilient despite higher energy prices and rising real interest rates.