Artificial Intelligence Macro brief: AI in Europe – implications for productivity

With US hyperscalers driving the AI boom, Europe has so far been broadly absent from the excitement surrounding this technology. But 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. Europe starts from a stronger position than often assumed, however. After the US, European countries are among the best placed to benefit from adopting AI.

Estimates from the OECD¹ 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.

AI adoption in Europe has also picked up. EU data show 20% of firms using AI in 2025, 6.5pp higher than in 2024, and an ad-hoc survey by the European Commission conducted between February-March 2026 found just over half of Europeans use AI, with one in four using it at work.

Despite these rising numbers, however, adoption rates continue to lag the US. A recent speech by European Central Bank chief economist Philip Lane pointed to structural factors constraining AI use in Europe, including the prevalence of smaller companies, fewer tech-focused industries and an uncertain, burdensome regulatory environment. But a recent paper from the Brookings Institute, looking at AI adoption across Europe and the US, found these factors only explain half the gap and argues the remainder is due to differences in management quality.

This finding is not new. Studies show US firms saw faster productivity growth than European counterparts during the ICT revolution in the 1990s and 2000s, with better managed American companies able to reorganise production around the new technology more effectively².

There are encouraging signs some European countries are trying to address this. Stronger employment protections and stricter compensation practices, for example, make it harder for European firms to restructure and incentivise performance. But Germany recently agreed reforms that make it easier to recruit and fire workers, as well as to pay employees using stock options.

Without a more concerted effort to complete the single market, however, or a more permissive culture around cross-border M&A, many European firms are unlikely to achieve the scale needed to make large fixed investments in AI. This suggests slower diffusion, and less willingness by firms to reorganise production, could limit potential productivity gains in Europe.

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This insight is part of our broader analysis on how today’s global shifts are impacting investment opportunities – a dynamic we call The Great Global Restructuring.