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GenAI heralds potential revolution in productivity

Insight
19 March 2025 |
Active ESG
Productivity growth across the world is in decline. However, the boom in Generative AI heralds a potential revolution in productivity – in areas such as customer operations, marketing and sales, and software engineering. How should EM investors respond?
Global Emerging Markets Outlook 2025

Fast reading

  • Productivity growth in advanced economies has declined to less than 1% in the aftermath of the 2008-09 financial crisis. In recent years, productivity growth in emerging economies has also been falling.
  • Advancements in microchip technology, a rollout of cloud computing capabilities, and an increased awareness about the importance of data have the potential to greatly increase productivity – as long as enterprises embrace this change.
  • GenAI enables machines to interact with people on an unprecedented level, helping to potentially address a multitude of tasks with speed and precision. GenAI has the potential to add US$2.6tn to US$4.4tn in value annually, according to McKinsey.

Rapid developments in digitisation have the potential to greatly increase productivity – as long as enterprises adapt and embrace this change.

The last few years have seen advancements in microchip technology, a rollout of cloud computing capabilities, and an increased awareness about the importance of data. We now stand on the cusp of a potential revolution in Generative AI (GenAI).

GenAI enables machines to interact with people on an unprecedented level, helping to potentially address a multitude of tasks with speed and precision.

The development of GenAI has been possible because of advanced microchip manufacturing; innovations in advanced packaging technologies – including high bandwidth memory (HBM) – and the development of software solutions that integrate Gen AI technology.

In December 2024, Google updated a list of more than 300 ‘realworld’ use cases of GenAI1. Many utilise ‘AI agents’ that can plan and carry out tasks on behalf of a user, which could help companies to improve productivity, automate processes and enhance customer experience, among other areas.

EM dynamism

The use of GenAI is not limited to the US or developed markets. A number of GEMs Equity portfolio companies have been developing dynamic applications using GenAI in advertising, videos and enterprise software – and even, potentially, humanoids (robotics).

A recent survey by CB Insights2 found that while GenAI is the leading technology priority for corporate strategy teams in 2025, only 32% of strategy leaders surveyed reported GenAI was being actively deployed at their organisations. 

The use of GenAI is not limited to the US or developed markets

However, most survey participants said their organisations were deploying mature technologies (such as AI [nongenerative], data management, cybersecurity, and cloud computing). It confirms our belief that such technologies are equally important – and will potentially form the building blocks for future GenAI deployment.

To understand the role of technology in boosting productivity, we need to look at the current state of productivity growth. According to a recent study by McKinsey3, productivity growth in advanced economies has declined to less than 1% (post-2008-09 financial crisis). In recent years, productivity growth in emerging economies has also been falling, towards the levels seen in advanced economies.

Figure 1: Productivity growth across all global regions since the 2008-09 global financial crisis

Source: McKinsey & Company

This decline in productivity growth can be attributed to a number of factors, including: lower capital deployment, the ‘de-globalisation’ of international trade, the slow progress of institutional reforms, and unfavourable demographic trends.

Surprisingly, productivity growth has not picked up in recent years despite the aforementioned technological advancements. It could prove to be something of a ‘lagged impact’ as advancements in microchip technology, and the proliferation of cloud computing and digital channels become widespread.

The rollout of digitisation at the enterprise level has been gradual, and as a result its benefits on productivity have been slow to trickle through. In contrast, consumers in much of the world have adopted digital technology quickly as part of their daily lives. As a result, there is a lot of hope that the impact of GenAI on productivity growth will be more meaningful – particularly given the speed at which innovative use cases are being developed.

GenAI has the potential to add US$2.6tn to US$4.4tn in value annually to the global economy across 63 use cases, according to a study by McKinsey4.

According to the research, about 75% of the value that GenAI use cases could deliver falls across four areas: customer operations, marketing and sales, software engineering, and R&D – providing a significant boost to overall productivity growth5.

A significant caveat is that workers will need to learn new skills or change occupations altogether and policymakers and businesses may have to navigate workers’ expectations carefully.

Strategic investment

There are many ways to benefit from the growing use of AI. We have seen the meteoric rise of Nvidia, TSMC, and many other US and Asian businesses in the semiconductor and cloud computing businesses. Nonetheless, we believe that at some point, the growth in the capex/build-out phase will slow down because enterprise adoption of GenAI is still in its early stages, and as with every new technological development, the hype cycle follows a typical trajectory.

According to Gartner6, GenAI is over the ‘peak of inflated expectations’as the business focus shifts from excitement around foundation models to use cases that drive ROI. As a result, the GEMs Equity Strategy’s investments not only include GPUs (TSMC), servers (Wiwynn), liquid cooling (Lotes), power management (Delta), networking (Accton) and advanced packaging equipment (ASMPT), but we are increasingly focusing on use-cases and adoption of GenAI. Hence, we have invested in Infosys, a leading IT services and software development business, and Cyient, a leading engineering and R&D service provider, focusing on companies adopting GenAI within our portfolio.

We believe that over the medium- to long-term, an equally large value opportunity will be captured by enterprises that successfully implement GenAI in their business processes, generating new revenue sources and/or running their operations efficiently, helping improve profitability and earnings.

In addition to GenAI use cases in enterprise software and processes, we believe that GenAI will drive the development of the next generation of humanoid robots. Integration of GenAI will help industrial robots become flexible and learn from past experiences.

The Federated Hermes GEMs Equity Strategy has invested in Shenzhen Inovance, China’s leading industrial automation company. In addition, we have an investment in Sinbon, a Taiwanese supplier of cables (integrated, sensor, high-speed data) and PCB assembly solutions for humanoid robotics.

Global Emerging Markets Outlook 2025

For more information on Global Emerging Markets Equity.

This information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.

Real-world gen AI use cases from the world’s leading organizations | Google Cloud Blog

2 Here’s how leading strategy teams are successfully driving generative AI adoption in their organizations – CB Insights Research

https://www.mckinsey.com/mgi/our-research/investing-in-productivity-growth

4 Economic potential of generative AI | McKinsey.

Generative AI could enable labour productivity growth of 0.1 to 0.6% annually through 2040, depending on the rate of technology adoption and redeployment of worker time into other activities. Combining generative AI with all other technologies, work automation could add 0.5 to 3.4 percentage points annually to productivity growth, according to McKinsey.

6  Gartner 2024 Hype Cycle for Emerging Technologies Highlights Developer Productivity, Total Experience, AI and Security.

The Peak of Inflated Expectations: On the Edge – BMC Software | Blogs

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Global Emerging Markets Outlook 2025

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