ECB President discusses artificial intelligence and euro area economic outlook

Christine Lagarde, President of the European Central Bank (ECB), delivered a speech at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament. She emphasized the importance of artificial intelligence (AI) for Europe’s economic future and its potential to improve productivity, competitiveness, and living standards.

Lagarde highlighted that firms are expected to allocate around 10% of total investment to AI by 2026, with AI-related borrowing accounting for approximately a quarter of credit growth to firms. She discussed the current euro area economic resilience, noting solid GDP growth in the second quarter of 2026 despite energy shocks, supported by manufacturing, consumer confidence, and increased AI activity in digital services, investment, and exports.

The labour market remains robust with a July unemployment rate of 6.4%, though employment growth is slowing. Inflation increased to 3.2% in August, driven by energy prices, while food inflation decreased slightly. The ECB projects inflation averaging 3.0% in 2026, with a gradual decline in subsequent years. The outlook remains uncertain, with risks to inflation and growth.

The ECB raised key interest rates by 25 basis points earlier this month, citing the need to keep inflation in check while considering energy price risks, inflation outlook, underlying inflation dynamics, and transmission to growth. The stance is described as a ‘middle path’ balancing these factors.

Lagarde discussed AI’s macroeconomic effects, including productivity gains and potential impacts on inflation, labour markets, and income distribution. She noted that 38% of euro area firms reported moderate AI use by late 2025, but significant use remains limited. Investment in AI infrastructure and innovation is crucial, with initiatives like InvestAI and the Scaleup Europe Fund supporting this effort.

She emphasized the importance of building European capacity in critical AI components, promoting innovation, and ensuring strategic independence without aiming for self-sufficiency. Adoption and effective use of AI require workforce retraining and supportive policies. Lagarde concluded that while AI’s effects are uncertain, inaction is not an option, and Europe’s strategic focus should be on fostering AI-driven productivity and sovereignty.