Focus

November 04, 2022 | 13:24

Robots to the Rescue?

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Michael Gregory , CFA

Deputy Chief Economist, Head of U.S. Economics and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Benjamin Reitzes

Managing Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Sarah Howcroft , CFA

Senior Economist and Vice President
Economics

Sarah Howcroft conducts risk analysis across a range of countries and industries in which BMO has strategic inte... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Michael Gregory , CFA

Deputy Chief Economist, Head of U.S. Economics and Managing Director
Economics

Michael is part of the team responsible for forecasting and analyzing the North American economy and financial m... (Read more)

Benjamin Reitzes

Managing Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Sarah Howcroft , CFA

Senior Economist and Vice President
Economics

Sarah Howcroft conducts risk analysis across a range of countries and industries in which BMO has strategic inte... (Read more)

Feature

Robots to the Rescue?

To say the current economic climate is challenging is an understatement. Between high inflation, labour shortages, supply-chain glitches, and the war in Ukraine, businesses and households are getting hit from all sides. Apart from hashing out a peace deal, robots are adept at addressing these challenges, as they are good at cutting costs, increasing efficiency, and keeping supply chains flowing. But are they up to the task of dousing the raging inflation inferno engulfing advanced countries?

Industry use of robots has sped up and spread in recent years. According to the International Federation of Robotics (IFR), the global stock of industrial robots grew at an average annual rate of 13% between 2015 and 2020 to a record high of about 3 million units. The world added half a million industrial robots in 2021, a record increase, taking the total to a new high of 3.5 million. Global sales of robotic units are estimated to rise by more than half a million in 2022. North American companies posted record robot purchases in the first quarter of 2022, up 28% in the past year, according to the Association for Advancing Automation. The gain is even more impressive considering that supply was likely held back by micro-chip shortages. The upswing in robot use accords with generally strong investment in computing gear in recent years, apart from the initial pandemic period (Chart 1).

The auto industry is the single largest user of industrial robots (around 30% of the global total), followed by electronics (19%), food and beverages (16%), and metals and machinery products (14%), according to SkyQuest Technology Consulting. However, demand for robots in the services sector now outpaces that of industrial robots. Large retailers are using robots to vacuum and scrub floors. Warehouses deploy robots to unload trucks, stack shelves and retrieve goods to fill orders. Self-driving vehicles (robocars) can deliver orders to your home. In the health care industry, robots assist in surgery and physical therapy.

The future for robots looks even brighter. Fortune Business Insights predicts that sales of global industrial robotics will more than double from an estimated US$16.78 billion in 2022 to $35.68 billion in 2029. Boston Consulting Group sees the market for all types of robots growing even faster, from about US$25 billion this year to between $160 billion and $260 billion by 2030. Sales of services robots are expected to reach up to $170 billion in 2030, more than double those of industrial robot sales of about $80 billion. McKinsey claims that 88% of global businesses intend to adopt robots.

Driving the increase in robot demand and automation in general is consumer preferences for fast delivery, as well as an aging population that needs more personal care. Retail stores and restaurants are using automation to address staffing shortages stemming from a wave of retirements and pandemic-spurred defections to other industries. It’s no coincidence that some of the biggest robot-using nations, notably Germany, Japan, and South Korea, have rapidly aging populations, according to one study [1]. China leads the world in robot use and faces a looming demographic challenge. In addition, robot use has benefitted from some reshoring of production arising from pandemic-related supply disruptions and trade frictions.

On the technology side, rapid advances in artificial intelligence and sensory technology have driven improvements in dexterity, mobility and flexibility. Robotic arms can grasp and manipulate even tiny, delicate objects. Robots are getting less expensive and easier to install, requiring no programming skills with some simply plug and play. The tag-team of AI and big data has increased the versatility of robots, allowing companies to customize their use for a range of tasks.

Businesses need to weigh the pros and cons of investing in automation. Robots are cost-effective, often paying for themselves within a few years. They can do hazardous, highly repetitive tasks that require heavy lifting, allowing workers to do safer, less physically demanding work. Robots are less distracted than humans and often better at multitasking. But they also have many shortcomings. They usually incur large start-up costs and require maintenance from highly skilled (and paid) technicians. They are still much less mobile than humans. Many customers prefer dealing with humans than automatons. This explains why more workers are collaborating with robots (cobots) and other types of automation, such as self-checkout kiosks, to achieve the best of both worlds.

Of course, one of the biggest social costs of robots is that they displace some occupations, notably for lower-skilled workers. This trend may only increase given the explosive growth in automation. However, studies tend to find mixed results about the long-term effects of automation on employment, as job losses are often recouped over time as productive capacity and national income rise, generating new (though often different) occupations. Clearly, despite the increased use of robots, the problem today is too few workers rather than not enough jobs.

There is some circumstantial evidence that the robot renaissance has lifted U.S. productivity. After a period of steady expansion, the trend in labour productivity growth turned up in 2018 and kept rising through much of the pandemic, before stalling (Chart 2). The recent slump could reflect other forces, such as ongoing disruptions to supply chains, deglobalization, and increased hiring of less-skilled workers to address shortages. Time will tell whether the upward trend will resume when these factors fade.

Bottom Line: Robots are coming, but probably not soon enough to resolve current economic challenges, notably high inflation. Even robots can’t repeal the laws of economics. Excess demand pressures are still heating up prices, and only old-fashioned monetary tightening can stamp out the fire. Still, robots could be nearing a critical mass that may help keep inflation corked up once it’s put back in the bottle.

Footnote:

[1] Acemoglu, Daron and Pascual Restrepo (January 2021). “Demographics and Automation”. https://pascual.scripts.mit.edu/research/demographics/demographics_automation_restud.pdf [^]