Vanguard expects AI could help the US economy achieve 3 per cent GDP growth as early as 2027, improving its forecast from the start of the year as AI development accelerates.
The investment firm has released its mid-year outlook and its views have evolved since the start of 2026 with AI remaining central to Vanguard’s investment thesis.
Six months ago, Vanguard forecast that the US economy would “eventually” grow by 3 per cent, based on investment trajectories relative to past technological revolutions. This has now been brought forward to as early as 2027.
“Our most notable call now is for 3 per cent US GDP growth in 2027, well above consensus forecasts,” Saleheen and Ferreira said. “This reflects what we view as a structural transformation rather than a cyclical acceleration.
“[AI] is already contributing to stronger US corporate earnings expectations, though elevated valuations suggest we could see periodic corrections as the transformation unfolds,” Europe chief economist Jumana Saleheen and senior economist Thiago Ferreira said.
“Importantly, AI appears increasingly likely to become a transformative technology, creating meaningful economic upside while also setting conditions for a potential rotation in market leadership.”
The AI investment cycle is ramping up faster than Vanguard previously expected. According to the pair, current AI investment suggests the economy is still in the early stages of a profound shift that could reshape productivity over the coming decade.
“Recent data show AI-related capital expenditure both exceeding its elevated late-2025 levels and tracking above our predictions for 2026. This wave of investment resembles historic periods of large-scale capital expansion, such as the railroad buildout in the 19th century and the late-1990s technology boom,” Saleheen and Ferreira said.
However, they expect the transition to take time. Vanguard forecasts US GDP growth of around 2.3 per cent in 2026, significantly more modest than its 2027 projection.
“The transition from investment to broad productivity gains will take a few years to unfold.”
The pair believe the US remains in the early-to-middle stages of this AI-driven capital cycle, with strong investment likely to continue for another year or two.
“Large technology firms appear well positioned to sustain infrastructure spending, and enterprise adoption is expanding. This supports our view that US economic strength will prove more enduring than many expect.”
Over the longer term, Vanguard expects AI to materially lift worker productivity, reducing both production and unit labour costs across sectors.
“This productivity boost should also help bring down inflation over time toward the Federal Reserve’s 2 per cent target,” Saleheen and Ferreira said.
The AI investment cycle is also benefiting parts of Asia. Exports have strengthened in several regions, including China, where AI-related activity and the green transition are supporting external demand and China’s GDP growth is expected to come in close to 5 per cent in 2026 and 2027.
In the meantime, the scale of AI investment is creating near-term inflationary pressure, compounded by higher oil prices. AI-related spending is contributing to core inflation as demand rises for semiconductors, data infrastructure, and energy.
“Such pressures are not uncommon during periods of rapid capital deepening.”
The near-term backdrop for global markets remains favourable, according to Vanguard, supported by a still-powerful AI investment cycle, strong earnings momentum, and scope for further positive earnings surprises.
