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Macro brief: AI in Europe – implications for productivity

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Macro brief: AI in Europe – implications for productivity

Key takeaways • While AI diffusion in Europe still lags the US, the lesson from past technological revolutions is that productivity growth ultimately depends less on where technology is developed than on how effectively it is deployed. Beth Beckett Economist • So far, European firms that have adopted AI match the US in productivity gains.

• Europe’s prevalence of smaller companies, fewer tech-focused industries and more burdensome regulatory environment are likely slowing adoption, as well as differences in management quality.

With US hyperscalers driving the AI boom, Europe has so far been largely Tryggvi Gudmundsson absent from the excitement surrounding this technology. Economist But while Europe has largely missed out on the race to create its own frontier models, the lesson from past technological revolutions is that the ultimate prize – stronger productivity growth – will depend less on where the technology is developed than on how effectively it is deployed. So far, progress is slow. While output per hour grew by over 2% in the US in 2025, it barely rose at all in the eurozone and UK. Of course, the gap in productivity growth between the US and Europe is nothing new: increases in the US have outpaced Europe since the 1990s, largely driven by gains in its tech sector. Still, the latest divergence suggests Europe risks falling further behind.

The good news: European AI adopters see similar gains to US… Europe starts from a stronger position than often assumed. After the US, European countries are among the best placed to benefit from adopting AI. Indices measuring ‘AI preparedness’ compiled by the IMF and policy think tanks1 consistently place European countries ahead of those in Asia and Latin America. France, Germany and the UK tend to score particularly highly, just behind the US.

Labour productivity (2025, %Y/Y growth)

0.0 UK Germany Eurozone France US

Data as at 23 June. Source: Datastream

Estimates from the OECD2 suggest labour productivity growth could rise by 1- 1.25 percentage points (PPT) annually in the US and UK, with Germany and France close behind at 0.7-1.1ppts. This would triple the average rate of productivity growth since 2010 in the UK and France and double it in Germany.

Labour productivity growth over the years (%)

Data as at 23 June. Source: Datastream, 100=year 2000

European firms also report similar-sized gains after adopting AI as those elsewhere. The European Commission finds self-reported labour productivity gains of roughly 4.5% (time savings of around 7.5% per month in a standard 40- hour work week).3 Meanwhile, a study by the Bank for International Settlements

1 Sources: IMF, Oxford Insights’ Government Ai Readiness Index 2025 2 Source: OECD, Macroeconomics productivity gains from AI in G7 economies, June 2025 3 Source: European Commission, The AI-adoption divide: Who benefits, who doesn’t, and what it