Artificial intelligence could give Europe a meaningful productivity boost over the next five years, but the same technology may also widen inequality, disrupt jobs and place additional pressure on already strained electricity networks, the International Monetary Fund has warned.
In a paper presented to European Union finance ministers, the IMF estimated that AI could raise European productivity by around 1% over five years. The gains, however, are unlikely to be shared equally across countries, regions or workers.
The Fund said Europe’s ability to capture the economic benefits of AI will depend heavily on whether governments improve cross-border investment, energy infrastructure, labour-market support and access to technology.
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Productivity gains could come with unequal rewards
The attraction of AI for policymakers is straightforward.
If companies can use AI to automate repetitive work, analyse information faster and help employees complete tasks more efficiently, the same number of workers may be able to produce more goods and services.
That is productivity growth, and over time it can support higher wages, investment and economic output.
But the IMF cautioned that the gains may be concentrated in economies and industries that already have strong digital infrastructure, skilled workers and access to capital.
Countries that adopt AI faster could pull further ahead of those that lack computing capacity, investment or workers with the required skills.
The Fund has repeatedly warned about this broader “AI divide”. Advanced economies are generally better placed to benefit because they have stronger institutions, digital infrastructure and AI-ready workforces.
Within Europe, that could leave smaller or less digitally developed economies capturing less of the productivity increase.
Around 60% of workers could face AI exposure
The labour market is another major concern.
According to the IMF paper reported by Reuters, around 60% of workers in advanced European economies are employed in jobs with significant exposure to AI.
Exposure does not automatically mean a job will disappear.
In many occupations, AI may assist workers rather than replace them. An accountant, lawyer, engineer or customer-support employee may use AI to complete parts of a task while remaining responsible for the final work.
The risk is greater where AI can perform most of the job rather than simply complement the worker.
In those cases, companies may require fewer employees or may change the skills they expect from existing staff.
The IMF has therefore argued that governments need stronger retraining, reskilling and labour-market programmes so that workers can move into new roles rather than carrying the entire cost of technological change.
AI’s electricity demand could become a bottleneck
Europe’s AI expansion also creates a physical infrastructure problem.
Training and operating large AI models requires massive data centres packed with computing equipment. Those facilities consume significant amounts of electricity and also require extensive cooling.
The IMF warned that AI could significantly increase electricity demand in major European technology hubs, including Frankfurt, London, Amsterdam, Paris and Dublin.
That could create bottlenecks if computing demand grows faster than electricity grids can expand.
The Fund wants European countries to invest more heavily in cross-border grid connections and further integrate their energy markets.
This is becoming an important economic issue well beyond Europe.
Governments around the world are competing to attract AI infrastructure, but data centres can place considerable pressure on electricity generation, transmission networks and local resources.
For Europe, the challenge is to expand computing capacity without turning electricity shortages or high energy prices into a brake on AI adoption.
Dependence on US and Chinese technology worries IMF
Europe also faces a strategic problem.
Much of the world’s advanced AI infrastructure is controlled by companies based in the United States, while China is building its own rapidly expanding AI ecosystem.
Europe has fewer companies operating at the same scale.
The IMF warned that relying heavily on foreign AI technology could leave European economies dependent on technologies, computing systems and platforms developed elsewhere.
The issue has become more politically sensitive as European technology companies argue that the continent needs to invest faster rather than falling further behind American and Chinese competitors.
Reuters reported this week that European AI companies have also pushed back against calls from some US technology leaders to slow advanced AI development, arguing that doing so could reinforce existing American dominance.
The IMF’s preferred answer is not simply more regulation or more subsidies.
It has argued that Europe needs a deeper single market, easier access to investment capital and fewer barriers preventing technology companies from expanding across national borders.
AI may therefore offer Europe a route out of years of weak productivity growth. But the IMF’s warning is that the economic dividend will depend on what happens around the technology — who can use it, who owns it, whether workers can adapt and whether Europe has enough power and infrastructure to support it.
What this means for you: AI may make many jobs more productive rather than eliminating them outright, but workers will increasingly need to adapt their skills. For businesses, access to reliable power, computing capacity and trained employees could become almost as important as access to the AI models themselves.
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