Artificial intelligence could raise productivity across Europe by about 1% over the next five years, but the gains are likely to be uneven and could widen inequality, put additional pressure on electricity networks and deepen Europe’s reliance on foreign technology, according to an International Monetary Fund paper.
The paper, prepared for an informal meeting of European Union finance ministers in Dublin on September 18-19, said the economic impact of AI would vary significantly across countries, regions and groups of workers.
The IMF argued that completing the EU’s single market could help spread the benefits of AI more broadly by making it easier for capital, labor, energy and technology to move across the 27-member bloc.
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The assessment adds to concerns already raised by former European Central Bank President Mario Draghi and the European Commission that fragmented European markets are limiting investment, innovation and the region’s ability to compete in emerging technologies.
Europe’s fragmented economic structure could become an issue as AI investment accelerates. Countries with stronger digital infrastructure, larger pools of skilled workers and better access to capital are positioned to adopt AI more rapidly, while economies with weaker infrastructure or smaller technology sectors could capture fewer of the gains.
AI Could Reshape Europe’s Labor Market
The IMF estimated that about 60% of workers in advanced European economies are employed in occupations that are highly exposed to AI.
Exposure does not necessarily mean job losses. Some workers could use AI tools to perform existing tasks more efficiently, increasing their productivity. Others, however, could face displacement as companies automate routine work.
The distribution of those effects will depend partly on whether AI complements workers or substitutes for them. Jobs involving tasks that can be automated more readily face greater disruption, while workers whose productivity can be enhanced by AI could benefit from the technology. That creates a potential divide within European economies. Workers with the skills needed to use increasingly capable AI systems could see productivity and earnings gains, while those performing more automatable tasks could face greater pressure.
The IMF said the differences could also emerge between countries. More advanced European economies are expected to benefit disproportionately because they are more prepared for AI adoption and have greater exposure to the technology.
Completing the single market could therefore serve as an important mechanism for spreading AI investment and expertise beyond Europe’s largest technology and financial centers.
AI Expansion Adds To Europe’s Power Challenge
The IMF also identified electricity infrastructure as a potential constraint on Europe’s AI ambitions.
European data centers already account for roughly 3% of the continent’s electricity consumption, according to the paper. That demand is expected to rise substantially as AI applications require more computing capacity.
The pressure is already concentrated in major technology and data-center hubs including Frankfurt, London, Amsterdam, Paris and Dublin. Clusters of data centers in those locations are placing additional demands on local electricity networks.
The IMF said Europe should respond by investing in cross-border electricity infrastructure and deepening integration of its energy market.
The recommendation reflects a broader issue facing the AI industry. Building more data centers requires not only semiconductor capacity and capital but also reliable supplies of electricity. Where local grids cannot accommodate new facilities, access to power can become a constraint on AI infrastructure investment.
For Europe, that challenge is complicated by the fact that electricity markets remain fragmented across national borders. Greater integration could allow power to move more efficiently to areas experiencing higher demand and make it easier to support new data-center capacity.
Europe Faces Another Technology Dependency
The IMF also warned that Europe’s AI expansion could create a new form of strategic dependence. The US and China currently dominate the development of leading AI models, leaving Europe reliant on technology developed elsewhere unless it builds a stronger domestic AI industry.
That dependence could extend beyond AI models to computing infrastructure, chips, cloud services and other parts of the technology stack.
The IMF said Europe would need significant investment in its own AI industry to reduce the risk of becoming dependent on foreign technology. Building that capacity, however, would require addressing some of the same constraints that currently limit European technology investment, including fragmented capital markets and differences between national regulatory and energy systems.
The productivity opportunity is therefore closely connected to Europe’s ability to remove barriers within its own economy.
The IMF’s estimate of a roughly 1% productivity increase over five years suggests that AI could make a measurable contribution to European economic growth, but the gains are unlikely to arrive automatically or evenly. Countries with stronger infrastructure, deeper technology ecosystems and more AI-exposed industries could capture a larger share of the benefits. Regions facing electricity constraints or lacking access to capital and skilled workers could fall further behind.
For European policymakers, the challenge is consequently not only how quickly businesses adopt AI, but whether the economic infrastructure around them can support that adoption. A more integrated single market, stronger cross-border electricity networks and greater investment in European AI capabilities are expected to be a determinant of how widely the productivity gains are distributed.
Without those changes, the IMF’s assessment indicates that AI could increase Europe’s productivity while simultaneously bolstering existing gaps between countries, regions and workers and creating new dependencies on technology developed outside the bloc.