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However, achieving large gains will hinge on European countries’ commitment to growth-enhancing
reforms and willingness to being flexible on regulation, to help the new technology to flourish. Absent
reforms, shows that the medium-term gain in productivity from the AI alone would vary considerably
across countries, and for Europe as a whole would be rather modest: about 1.1 percent cumulatively over
five years. With pro-growth reforms, though, much bigger gains are possible over the longer run.

Figure 7: Labor productivity and GDP per capita growth declined in the EU

Source- IMF

Three factors drive the economy-wide and one-off productivity effects of AI adoption:
• Exposure to AI of different sectors and occupations—the degree to which AI can automate or
augment tasks;
• Companies’ incentives to adopt AI, particularly potential savings in labour costs;
• Average productivity gains across occupations. Contrary to past automation technologies, AI
exposure is especially large in professional, managerial, or administrative work that is non-manual
and often knowledge-based, like finance or software development.

European countries would benefit to different degrees. Higher-income countries typically gain more
because they have more white-collar services, leaving them more exposed to AI. They also have higher
wage levels which increase incentives to adopt labour-saving technologies. For example, Norway could
gain as much as 5 percent in the most optimistic scenario.

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