GenAI could add €1.4 trillion to EU GDP by 2034

According to a new Google report, generative AI could increase the EU’s gross domestic product by between €1.2 and 1.4 trillion within ten years, the equivalent of 8% growth per year.

The benefits would come from increased employee productivity, free time created by automating tasks, and re-employment of people who once handled these tasks.

The report “The Economic Opportunities of Artificial Intelligence in the EU” was prepared by Implement Consulting Group using economic modeling approaches developed by investment bank Goldman Sachs. He makes a compelling case against over-regulating AI in the bloc.

It is estimated that GenAI will increase 61% of jobs, which will translate into productivity gains worth up to EUR 1.1 trillion. About 7% of jobs will be fully automated, and the re-employment of workers in new positions will generate an additional €350 billion. Analysts then reduce this amount by at least €50 billion to account for potential productivity losses from GenAI.

Surveys also showed that 74% of all workers in European countries have already reported improved productivity as a result of GenAI.

“Generative AI has the potential to increase productivity across all sectors by augmenting and improving human capabilities,” said Martin H Thelle, partner at Implement Consulting. “Unlike existing automation such as robots, generative AI can increase productivity in services, where 80% of its economic potential lies.”

The EU is not technologically competitive with the rest of the world

Google’s study follows a September report by former European Central Bank president and economist Mario Draghi, who argued that slowing productivity in Europe has hampered growth in the region. EU GDP was only $280 billion higher than US GDP in 2009, but the gap has widened since then and in 2023 US GDP was $9 trillion higher.

Draghi says this is largely due to the EU’s lack of competitiveness compared to other regions of the world in terms of innovation, especially in advanced technologies. EU companies tend to specialize in mature technologies with limited breakthrough potential. As a result, in 2021 they spent €270 billion less on research and innovation than their US counterparts.

Even though Europe’s three biggest investors in research and innovation are technology companies, “we are failing to translate innovation into commercialization,” Draghi says, pushing entrepreneurs to the United States. Currently, only four of the world’s 50 largest technology companies are European, with the United States dominating AI, cloud and quantum.

SEE: The UK government is committing £1.3 billion to artificial intelligence and technological innovation

Indeed, Google’s report shows the EU’s lack of competitiveness through three main indicators: the productivity gap, research and development shortcomings and artificial intelligence lags.

Implement researchers found that since 2010, Europe has maintained a 20% productivity gap with the United States and spends only 2% of its GDP on research. For comparison, the United States spends 3% and South Korea and Israel spend more than 5%.

The region also lags behind in artificial intelligence innovation. In 2022, only 34% of EU businesses used cloud computing technology, a key enabler of artificial intelligence, falling well short of the European Commission’s target of 75% by 2030. Europe reported only 2% in 2022 global AI patents, while China and China United States, the two largest producers, claimed 61% and 21% respectively.

Researchers behind the Google report used data from Tortoise’s global AI index to assess how well the EU is performing on key drivers of AI adoption. The results show that the EU is indeed strong in terms of infrastructure, government strategy and operational environment, the latter relating to factors such as trust and data management.

However, it also confirms the region’s problems in terms of AI innovation, as it performs poorly in terms of talent, research, development and commercial exploitation.

“Current gaps indicate that the EU risks falling behind the next wave of artificial intelligence and must increase its efforts to remain competitive,” the authors wrote.

Google recommends that Europe invest in AI research to make it more accessible, build AI infrastructure powered by renewable energy sources, invest in digital skills programs and develop outreach strategies to promote AI adoption.

Regulations are to blame, says Google

Both the Google and Draghi reports largely blame EU regulations for the region’s struggles with high-tech innovation.

“Innovative companies looking to scale up in Europe face obstacles at every stage due to inconsistent and restrictive regulations,” Draghi wrote. More than half of SMEs cite regulatory obstacles as their biggest challenge due to the administrative burdens they impose.

Draghi adds that inconsistent rules across EU member states restrict cross-border activity and hamper innovation, preventing businesses from growing.

“Since 2019, the EU has introduced over 100 pieces of legislation that impact the digital economy and society. The challenge is not just the sheer number of regulations, but their complexity,” said Matt Brittin, president of Google EMEA, in a blog post. “Moving away from a regulatory-first approach can help unlock the opportunities presented by artificial intelligence.”

However, Google’s report acknowledges the need for some form of regulation, calling on the EU to “create supportive and tailored regulation of artificial intelligence and global governance” that includes privacy and security rules to protect personal data.

SEE: Deloitte: 50% more specialists consider data privacy to be the most important issue for GenAI in 2024.

This is not the first time Google has commented on regulations regarding artificial intelligence. Just last month, Debbie Weinstein, the company’s UK managing director, criticized British laws that prevent artificial intelligence models from being trained on copyrighted material, saying it was a barrier to development.

Big Tech faces pressure from AI regulations, risking market losses

With a population of 448 million, the EU is a large market for the world’s largest technology companies. However, the implementation of a rigid Artificial Intelligence Act and Digital Markets Act has discouraged them from launching the latest AI products in the region.

In June, Meta delayed training its large language models for public content shared by adults on Facebook and Instagram in Europe after objections from Irish regulators. Meta AI, its pioneering AI assistant, is still not released on the bloc due to “unpredictable” regulations.

Apple will also not initially make its new suite of generative AI capabilities, Apple Intelligence, available on devices in the EU, citing via Bloomberg “regulatory uncertainty caused by the Digital Markets Act.”

The DMA prevents big tech companies from abusing their dominant market positions, and the EU is not alone in monitoring competitiveness in the AI ​​sector. In July, regulators from the US, UK and EU issued a statement of their shared intention to investigate whether the AI ​​industry allows for sufficient competition.

Meta, along with Spotify, SAP, Ericsson, Klarna and others, also signed an open letter to Europe last month, expressing concerns about “inconsistent regulatory decision-making” and that Europeans will lose out on AI innovation as a result. SAP’s CEO told the Financial Times this week that he is “totally opposed” to regulating artificial intelligence in Europe.

The EU Artificial Intelligence Act entered into force on August 1 and imposes strict requirements on high-risk artificial intelligence systems to ensure security, transparency and ethical use. Failure to comply could result in financial penalties ranging from €35 million, or 7% of global turnover, to €7.5 million, or 1.5% of turnover.

Many companies comply with regulations, despite the challenges they bring. More than a hundred, including Amazon, Google, Microsoft and OpenAI, have already signed the EU’s AI pact and volunteered to start implementing the bill’s requirements ahead of the legal deadlines. This both demonstrates their commitment to the responsible implementation of AI among society and helps them avoid future legal challenges.