AI may boost euro area productivity growth by 4% in 10 years, ECB says

FRANKFURT (Reuters) - Artificial intelligence could lift euro zone productivity growth by more than 4 percentage points over the next decade, although a prolonged energy shock could slow progress, European Central Bank chief economist Philip Lane said on Monday.

While the ECB's immediate focus is the conflict in the Middle East and what it may mean for inflation, Lane highlighted AI as a key long-term driver for the bloc's economic fortunes.

He told an ECB conference the potential payoff from AI adoption would vary widely depending on how fast the technology spread.

A take-up rate in line with previous innovations such as the internet would deliver at least 1.5 percentage points of extra productivity growth in 10 years, Lane said. But if adoption continued at today's pace and reached at least half the economy, the gain could exceed 4 percentage points.

"The greatest impact will be achieved if AI materially boosts the pace of innovation, as rather than just boosting the level of productivity, this could increase the long-run potential growth rate," Lane said.

He warned, however, that persistently high fuel costs curb progress in building new AI models and curtail the adoption rate too, given the technology's high energy use.

EUROPE IS BEHIND

Europe is starting from behind, Lane noted. Only about 3% of euro-area patents relate to AI, compared with 9% in the United States.

And euro zone residents are spending nearly 250 billion euros ($290 billion) a year on royalties to foreign patent-holders — mostly U.S.-based — ⁠underscoring the bloc’s dependence on imported technology.

Lane partly blamed Europe’s shallower capital markets, which he said constrain the investment needed to scale up innovation.

"Ensuring broad access ⁠to finance, supporting diffusion among smaller firms and investing in skills and complementary intangible assets will be central to realising AI’s potential while limiting adjustment costs," he said.