Eurozone: GenAI will boost growth, but is not a silver bullet

Our baseline forecast assumes generative artificial intelligence (GenAI) will boost eurozone GDP level by 1.4% over the next 15 years, largely via stronger labour productivity growth, and through investment and R&D spending into GenAI developments and applications. This will generate second-round gains via higher incomes and stronger consumer spending.

What you will learn:

• Immediate productivity gains from GenAI will be concentrated in services, but we argue that high value-added manufacturing stands to gain from it. This should favour the large industrial sectors in some eurozone economies, but the bloc will likely take a more stringent regulatory approach to GenAI, and a weaker capital market could stifle its investment, adoption, and innovation.
• We also anticipate a significant impact on the labour market. Some jobs will become obsolete through automation, but the net impact needn’t be negative – technology booms usually create more jobs than they destroy. In addition, eurozone’s stifled labour market might benefit from higher flexibility, while automation will help address the weak demographic outlook.
• But the ultimate economic impact is quite uncertain and will depend on the speed and breadth of adoption, eurozone’s competitive position internationally, and the policy response, including subsidies and regulation. The eurozone is well-positioned to benefit from GenAI, but will likely lag the US and China.