Eurozone: Benefits of AI boom will take longer to see

In an echo of the ’90s information and communications technology revolution, Europe lags the US when it comes to investment in AI. But this time, we expect European productivity to benefit from the new technology. Businesses are already adopting AI and the labour market is shifting towards roles that can be complemented rather than replaced by AI in the long run.

What you will learn:

• In the near term, Europe will see less of a boost to growth from the AI boom. Much of the investment has been concentrated in a few large US based organisations. But structural headwinds to investment in Europe, such as weaker network effects, lower rates of venture capital investment, and relatively high energy prices, will persist.
• On the upside, financial market fundamentals appear to be in a decent shape, with valuations lower than the peak during the dot com bubble. But high market concentration around tech firms, a turn in the investor sentiment, and expanding private capital market remain major risks.
• The adoption of new innovations will play just as big of a role as the buildup of the European capital stock in driving productivity growth over the coming decades. If business and individuals are willing to adopt AI, whether developed in Europe or elsewhere, there’s still plenty of scope for it to benefit productivity, even if European AI investment lags the US.
• As more European companies adopt AI, the shifts have been the largest amongst big businesses, which points to Northern Europe benefitting more from AI than its southern neighbours. Early signs from the labour market are that employment is gradually shifting towards roles that will be complimented, rather than replaced, by AI.