Citibank 

Global Economy’s Digital Transformation

Taking Off on the Virtual Progress Wave

A team led by Nathan Sheets explores the digital transformation of the global economy in a new Must C report. This shift is redefining ecosystems to rely more on data and knowledge rather than physical goods.

The Rise of Digital Efficiency

One major outcome of this change is a noticeable boost in efficiency. This trend is likely to accelerate with the rapid evolution of generative AI (GenAI). Experts forecast robust global economic growth over the next decade, largely powered by digital technologies.

Digital transformation occurs in three ways:

1. Digitizing existing processes
2. Creating and manufacturing goods to support the digital economy
3. Generating entirely new activities that weren’t possible in a physical economy

This leads to a broad impact. For example, last year alone, around two-thirds of the global population accessed the internet, and Facebook had 3 billion active users.

Measuring the Digital Economy

There’s currently no universally accepted method for defining or measuring the digital economy. In the U.S., a narrow definition estimates it at 7% of nominal GDP, while broader measures suggest over 20%.

Regardless of the metrics, its growth trajectory is undeniable. According to the U.S. Bureau of Economic Analysis, the digital economy grew at an annual rate of 7% from 2017 to 2022, compared to 2.2% for the overall economy. As GenAI adoption increases, this gap could widen, pushing the digital economy’s GDP share even higher.

Sectoral Contributions and Future Outlook

Our analysis includes both core digital sectors, hardware, software, and the internet, and downstream industries like media, entertainment, retail, and electrical equipment.

The rise of AI has heightened demand for:

• High-performance CPUs
• Flexible, high-speed networking equipment
• Expansive data centers
• Cutting-edge software

AI-related spending on hardware, software, and services could grow by 30% annually in the coming years.

Additionally, the creator economy is reshaping industries. For instance, 70% of all advertising is now spent online. This shift also benefits businesses involved in entertainment and social media.

Challenges and Considerations

We remain optimistic about the digital economy and GenAI’s potential. However, several challenges must be addressed:

• Developing supportive legal and regulatory frameworks
• Mitigating risks like deepfakes, hacking, and cyberattacks

Businesses will need to integrate these technologies into workflows, requiring:

• Investment
• Training
• Process innovation

Final Thoughts

The digital transformation of the global economy is not just a trend; it’s a powerful movement reshaping industries and redefining progress. With the right infrastructure and safeguards, its benefits could be immense.

Global Digital Economy Transformation