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Will Europe join the AI party?

  • Article
  • Europe is likely to experience a much smaller economic boost from the AI investment cycle than the US or Asia…
  • …and if the ICT boom of the 1990s is a guide, any long-run productivity gains from AI might also prove smaller…
  • …but at least Europe is less exposed to AI risks, including job losses and a potential stock market correction

Only in America?

AI investment is now providing a meaningful boost to economic growth in the US, as well as Asian exporters of IT hardware. To what extent can Europe see a similar economic fillip?

So far, we see limited evidence that Europe is joining the party. Bar a couple of exceptions – an emerging datacentre boom in Iceland, and some Q3 strength in the UK and France – the official data generally show unremarkable developments in IT hardware and software investment in Europe in 2025.

Looking ahead, we think AI investment is likely to contribute only marginally to European growth. Without the same finance provided by big tech companies, the scale is likely to remain smaller than in the US. Data centres are a case in point, where the whole European construction pipeline is dwarfed by the US state of Virginia.

Less likely to feel the upsides from adoption…

If Europe misses out on the investment cycle, what matters more in the long run is whether it can experience the same productivity boon from the adoption of AI tools, where the full macro impact may not become clear anywhere until the 2030s. If AI proves to be a ‘general purpose technology’ – with US-created tools available everywhere – surely all economies can experience a similar productivity benefit?

Not necessarily. For example, the ICT boom in the 90s/00s appeared to provide a much smaller uplift to productivity in Europe than in the US. The stage could be set for a repeat performance, with surveys suggesting that European companies have so far made much less progress in embedding AI than their American counterparts.

…but less exposed to the downsides

If it’s any consolation, the European economy is probably less exposed to the downside risks associated with AI. With more limited – or at least more gradual – adoption in prospect, any AI-related job losses might be less severe than in the US. And of course if AI turns out to be a bubble and the investment cycle goes sour, there’s a smaller bubble to burst in Europe – our analysis of possible exposures to a potential bubble via financial markets, domestic investment, and trade with the US, suggest that the probability of a big European downturn induced by an AI crash remains low.

Would you like to find out more? Subscribers to HSBC Global Investment Research can read the full report on the impact of AI on European economies by clicking here*.

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