The Rise of AI-Powered Digital Economy

April 07, 2025

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A Nexus of AI and Digital Economy

In the digital era with accelerating momentum, emerging technologies, such as the Internet of Things (IoT), blockchain, artificial intelligence (AI), machine learning, big data, and quantum computing, are becoming key enablers for productivity and economic growth. These technologies, particularly AI, are instrumental in driving the transition to and expansion of the digital economy at both regional and global levels.

AI's potential to boost economic growth remains substantial. At the regional level, some areas like Southeast Asia, are still in the early stages of AI adoption. However, per a study by Kearney, AI's contribution to this region's economic growth is forecast to increase by 10-18% of GDP by 2030, equivalent to nearly one trillion USD.¹ As indicated by McKinsey, generative AI only has the potential to increase Europe's annual productivity growth by up to 3% through 2030.² Globally, a study by the International Data Corporation (IDC), a leading US-based market intelligence firm, forecasts that AI will contribute 19.9 trillion USD to the world economy by 2030, accounting for 3.5% of global GDP in 2030.³

The IDC study further indicates that in 2030, every new dollar spent on business-related AI will generate 4.60 USD in the global economy.⁴ Given this potential high impact, nations are incentivized to strategically emphasize embracing AI development.

The Surge of AI Innovation

Since ChatGPT - a generative AI tool - hit the world in late 2022, AI is suddenly everywhere, with various generative AI tools, like ChatGPT, Stable Diffusion, Github Copilot, and DALL-E, being applied to customer service, content creation, education, healthcare, software development, and even receiving research budgets at an unprecedented pace.⁵ While these AI applications in their current forms have limitations, they are already starting to transform industries, lifestyles, and occupations due to their accessibility.

Two years after ChatGPT's public release, enthusiasm for AI development and applications remains strong, with AI-powered innovation continuing to accelerate. This momentum is evident as both tech startups and industry giants invest billions into developing AI agents capable of complex interactions and autonomous decision-making based on past experiences, further advancing the sector. A notable example is the 100 million USD funding secured by Genspark, an AI search startup aiming to challenge established search engines like Google.⁶

The beginning of 2025 marked a game-changing shift in the AI landscape, with DeepSeek - a Chinese AI App - emerging on the global stage to challenge US dominance in AI innovation and disrupt the technical duopoly. Compared to the well-known ChatGPT, DeepSeek is a more cost-effective AI tool due to utilization of edge deployments and energy-efficient hardware.⁷ The emergence of DeepSeek is a breakthrough which demonstrates advanced AI can be developed without immense expenses. This disrupts the traditional notion that progress is solely dependent on substantial financial investments.⁸ Open-source and free-to-use features also make DeepSeek a viable alternative for businesses with limited AI adoption budgets. The availability of cost-effective AI apps like DeepSeek paves the way for the next wave of AI prospects across sectors.

Navigating Innovation, Adoption, and Risks in the AI-Powered Digital Economy

A surge of innovation has created numerous opportunities for expansion of the AI-powered economy. Nations, especially major powers, are racing for sector-specific and business AI use cases for the digital economy. Despite global economic uncertainty, investment in AI startups across Southeast Asia increased by more than 40% in 2023.⁹ Europe is more active in its AI-powered digital economy initiatives, with private investments in AI reaching 11 billion USD and more than one-third of enterprises adopting AI in 2023. Despite this, Europe still lags behind the US in terms of AI investment and adoption. In 2023, US private investment in AI numbered 67.2 billion USD, over six times higher than Europe's.¹⁰ Regarding adoption, European organizations are 45-70% behind their US counterparts.¹¹ To bridge this gap, European governments and private companies launched the InvestAI initiative in 2025, mobilizing 200 billion EUR (about 206.5 billion USD) for AI-related investments.¹²

As AI is widely recognized as a growth driver for the digital economy, the race for AI innovation could be further intensified. Particularly, the unexpected advancement of Chinese startup DeepSeek raises a daunting challenge in a field traditionally dominated by Silicon Valley tech giants like OpenAI, Google, and Microsoft,¹³ potentially accelerating the AI race among global superpowers. The race to outperform is likely to intensify concerns around privacy, ethics, and societal impact due to increased risks of data breaches and misuse. This is already highly debated around ChatGPT. In 2023, Italy temporarily banned ChatGPT for all users over privacy and security concerns. A similar concern was also raised for DeepSeek, which was banned from all government devices by several countries, including South Korea, Australia, the US, and Italy.¹⁴ The growing global scrutiny of AI tools over data privacy and security goes beyond national regulations, with leading companies like Apple, Amazon, and Samsung also blocking usage.¹⁵

The domination of AI development and adoption by large companies is also a tangible risk, as it could lead to monopoly and economic inequality. Small and medium-sized enterprises (SMEs) are identified with significant barriers to AI adoption, including talent sourcing, technical capabilities, and implementation costs. Due to these barriers, the adoption of AI and other digital technologies in Europe is currently dominated by larger companies, with adoption rates at 51% compared to 31% among SMEs.¹⁶ This same trend is witnessed in the US, where AI adoption is concentrated in sectors such as manufacturing and health care.¹⁷ This uneven AI adoption could create barriers for SMEs and intensify wealth concentration, hindering the sustainable growth of the emerging AI-powered digital economy.
The risk of potential biases in decision-making is another concern as AI agents are developed and deployed to make autonomous decisions and execute actions on behalf of users or organizations.¹⁸ When AI is used as a decision-making agent, its models often operate as a "black box" without transparent processes and may inherit biases from training data, potentially resulting in discriminatory outcomes in areas such as hiring, lending, and policing. The reduction of human oversight in decision-making and task execution can make it impossible to point out who is responsible in case of a harmful or biased decision. Decisions made by AI agents often rely on complex algorithms that are not easy for humans to understand or validate, creating an "explainability gap."¹⁹

Advocate for AI Policies Balancing Innovation and Ethical Standards

AI technology is neither good nor bad. The critical concern is who controls this technology and what it is used for. Therefore, pro-innovation policies that foster AI innovation while upholding ethical standards are essential to navigate a balanced pathway for the development of an AI-powered digital economy. Pro-innovation policies could incorporate structured frameworks, such as OPEN (Outline, Partner, Experiment, and Navigate) and CARE (Catastrophize, Assess, Regulate, and Exit), to guide organizations in their efforts for AI innovations, while taking proactive measures to mitigate both the technical and human-related AI risks.²⁰ Industry leaders can also play a crucial role in shaping balanced policies that align innovation with ethical compliance in the development of an AI-powered digital economy.

Support Startups and SMEs in AI Development and Adoption

Encouraging open-source AI projects and funding for SMEs is a balanced strategy to prevent monopolization by large companies, whilst sustaining momentum for AI-powered digital economy growth. DeepSeek, the hot new Chinese AI tool, is a notable example of AI startups worth supporting. While the world was expecting another AI breakthrough from Silicon Valley and Western tech giants, DeepSeek was released by an unknown Chinese startup, which built a low-cost AI model with less technologically advanced chips, outperforming the tools developed by big tech.²¹ DeepSeek's cost-effectiveness and free-to-use model offer an economically viable alternative to ChatGPT, making AI affordable for SMEs. In terms of AI adoption by SMEs, the US is leading the way, setting an example with 98% of small businesses integrating AI-enabled tools like chatbots and image generators into their operations.²²

Explainable AI and Tech Integration for Enhanced Transparency and Trust

Explainable AI is one potential solution to building public trust in AI for decision-making and encouraging wide adoption.²³ The advancement of explainable AI could empower companies to unlock the "black box" of their AI agents, disclosing how algorithmic decisions are made and providing clearer mechanisms for users to comprehend AI-driven decision-making processes. Through an explainable AI system, businesses can showcase their commitment to transparent and responsible AI practices and adherence to ethical guidelines, which helps to enhance transparency and trust in AI-driven digital economy activities. The integration of AI with other emerging technologies, such as IoT, blockchain, and quantum computing, offers an alternative solution to enhancing transparency and trust.

Collaborative Initiatives on AI Governance and Regulation

AI's intelligent applications are broad and vary significantly depending on the use case. This underscores that the governance and regulation of an AI-powered digital economy needs to be on specific use cases within and across industries and jurisdictions. However, this does not mean that businesses, industries, and countries should act in isolation to control and mitigate risks while capturing AI's full potential for the digital economy. Conversely, there is an urgent need for collaborative efforts to ensure sustainable economic development for all by mitigating AI risks and fostering peer learning. However, with the United States' aggressive AI strategy of resisting regulation and China's pursuit of its rule-setting agenda,²⁴ a concerted global framework to foster AI innovation growth while protecting users in the transition to the AI-powered digital economy appears unlikely. Instead, collaborative initiatives to develop ethical, transparent, and inclusive AI standards may be more feasible through engagement with China or through regional efforts in areas such as Europe and Asia-Pacific.

 

 

1. "Racing Toward the Future: Artificial Intelligence in Southeast Asia," Kearney, October 7, 2020, https://www.middle-east.kearney.com/service/digital-analytics/article/-/insights/racing-toward-the-future-artificial-intelligence-in-southeast-asia.

2. Alexander Sukharevsky et al., "Time to Place Our Bets: Europe's AI Opportunity," McKinsey & Company, October 1, 2024, https://www.mckinsey.com/capabilities/quantumblack/our-insights/time-to-place-our-bets-europes-ai-opportunity.

3.  "Artificial Intelligence Will Contribute 19.9 Trillion USD to the Global Economy Through 2030 and Drive 3.5% of Global GDP in 2030," IDC, September 17, 2024, https://www.idc.com/getdoc.jsp?containerId=prUS52600524.

4.  "Artificial Intelligence," IDC.

5. David Havyatt, "Suddenly, AI Is Everywhere," InnovationAus, February 14, 2023, https://www.innovationaus.com/suddenly-ai-is-everywhere/.

6. Anna Tong, "AI Startup Genspark Raises 100 Million USD to Compete with Google, Source Says," Reuters, February 21, 2025, https://www.reuters.com/technology/artificial-intelligence/ai-startup-genspark-raises-100-million-compete-with-google-source-says-2025-02-21/.

7. Vinod Chugani, "DeepSeek vs. ChatGPT: How Do They Compare?," DataCamp, https://www.datacamp.com/blog/deepseek-vs-chatgpt.

8. "'AI Godfather' Sounds the Alarm on Growing Risks in the AI Race," Media OutReach, February 28, 2025, https://www.media-outreach.com/news/vietnam/2025/02/28/364437/ai-godfather-sounds-the-alarm-on-growing-risks-in-the-ai-race/.

9. "The Next Wave: Emerging Startup Trends Reshaping Southeast Asia's Digital Economy," Tech Collective, March 10, 2025, https://techcollectivesea.com/2025/03/10/the-next-wave-emerging-startup-trends-reshaping-southeast-asias-digital-economy/.

10. Christina Mendel, "Europe's AI Future Depends on Business Leaders, Not Just Policymakers," Forbes, March 6, 2025, https://www.forbes.com/councils/forbesagencycouncil/2025/03/06/europes-ai-future-depends-on-business-leaders-not-just-policymakers/.

11. Sukharevsky et al., "Europe's AI Opportunity."

12. "InvestAI Initiative to Mobilize Strong Investment in Artificial Intelligence," NCP Flanders, February 12, 2025, https://ncpflanders.be/news/investai-initiative-to-mobilise-strong-investment-in-artificial-intelligence.

13. "Growing Risks," Media OutReach.

14. Samriddhi Srivastava, "Countries That Have Banned DeepSeek and Why," People Matters, February 10, 2025, https://anz.peoplemattersglobal.com/article/technology/which-countries-have-banned-deepseek-and-why-44304.

15. Siladitya Ray, "Apple Joins a Growing List of Companies Cracking Down on Use of ChatGPT by Staffers - Here's Why," Forbes, May 19, 2023, https://www.forbes.com/sites/siladityaray/2023/05/19/apple-joins-a-growing-list-of-companies-cracking-down-on-use-of-chatgpt-by-staffers-heres-why/.

16. "AI Adoption Forecast to Unleash 600 Billion EUR Growth in Europe's Economy," Amazon, February 12, 2025, https://www.aboutamazon.eu/news/job-creation-and-investment/ai-adoption-forecast-to-unleash-600-billion-growth-in-europes-economy.

17. Brian Eastwood, "The Who, What, and Where of AI Adoption in America," MIT Sloan School of Management, February 7, 2025, https://mitsloan.mit.edu/ideas-made-to-matter/who-what-and-where-ai-adoption-america.

18. Dez Blanchfield, "Turning AI into Decision-Making Agents: Opportunities, Challenges, and What's Next," Elnion, March 12, 2025, https://elnion.com/2025/03/10/turning-ai-into-decision-making-agents-opportunities-challenges-and-whats-next/.

19. Blanchfield, "Turning AI."

20. Faisal Hoque, "Two Frameworks for Balancing AI Innovation and Risk," Harvard Business Review, March 6, 2025, https://hbr.org/2025/03/two-frameworks-for-balancing-ai-innovation-and-risk.

21. Kelly Ng et al., "DeepSeek: The Chinese AI App That Has the World Talking," BBC News, February 5, 2025, https://www.bbc.com/news/articles/c5yv5976z9po.

22. "New Study Reveals Nearly All US Small Businesses Leverage AI-Enabled Tools, Warns Proposed Regulations Could Hinder Growth," US Chamber of Commerce, September 16, 2024, https://www.uschamber.com/technology/artificial-intelligence/new-study-reveals-nearly-all-u-s-small-businesses-leverage-ai-enabled-tools-warns-proposed-regulations-could-hinder-growth.

23. Blanchfield, "Turning AI."

24. Malki Opatha and Bart Hogeveen, "Trump's AI Strategy Puts the Indo-Pacific at a Crossroads," The Strategist, February 28, 2025, https://www.aspistrategist.org.au/trumps-ai-strategy-puts-the-indo-pacific-at-a-crossroads/.

 

 

This article is from the March issue of TI Observer (TIO), which explores the AI-powered digital economy, analyzing how nations navigate the balance between development and governance, while examining the impact of technological advancements on global competition and the broader international order. If you are interested in knowing more about the March issue, please click here:

http://en.taiheinstitute.org/UpLoadFile/files/2025/3/31/14372768c45e0ae0-6.pdf

 

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