Artificial intelligence has the potential to significantly boost productivity growth in the euro zone, potentially adding more than 4 percentage points over the next decade. European Central Bank (ECB) chief economist Philip Lane highlighted this at a recent ECB conference, emphasizing AI as a key long-term driver for the bloc’s economic performance. However, he cautioned that a sustained energy crisis could impede progress due to the technology’s high energy consumption and its impact on the development of new AI models.
Lane pointed out that the extent of productivity gains would depend on the speed of AI adoption. A rate comparable to previous technological advancements like the internet could yield at least 1.5 percentage points of extra productivity growth within ten years. Should adoption accelerate to encompass at least half of the economy, the increase could surpass 4 percentage points. The ECB is the central bank of the European Union countries which have adopted the euro. It aims to maintain price stability in the euro area and safeguard the value of the euro.
Despite the potential, Europe currently lags behind the United States in AI development. Only about 3% of euro-area patents are related to AI, compared to 9% in the U.S. This dependence on imported technology is further underscored by the nearly 250 billion euros spent annually on royalties to foreign patent-holders, predominantly based in the U.S. Lane attributed this gap, in part, to Europe’s less developed capital markets, which limit the investment required to scale up innovation.
To fully realise AI’s potential and minimise adjustment costs, Lane stressed the importance of ensuring broad access to finance, supporting diffusion among smaller firms, and investing in skills and complementary intangible assets. Overcoming these challenges will be crucial for the euro zone to capitalise on the transformative power of artificial intelligence.
