Lagarde Warns AI Could Reshape Europe's Economic Outlook

European Central Bank (ECB) President Christine Lagarde has expressed concern that artificial intelligence could reshape Europe's economic outlook. In a speech to the European Parliament's Committee on Economic and Monetary Affairs, she warned that AI could influence productivity, investment, employment, and inflation while creating new financial and labour-market risks.

Lagarde noted that European firms are expected to devote about 10 percent of total investment to AI this year, with AI-related borrowing accounting for roughly a quarter of credit growth to firms. While she sees the technology as an opportunity to strengthen productivity, competitiveness, and living standards, she stressed that the benefits will not be automatic.

The ECB projects euro area economic growth of 0.9 percent in 2026, accelerating to 1.4 percent in 2027 and 1.5 percent in 2028. However, inflation remains a concern, with headline inflation rising to 3.2 percent in August from 2.9 percent in July, driven largely by energy prices.

Lagarde also highlighted the potential for AI to increase productivity, allowing firms to produce more efficiently and eventually reduce production costs, which could ease inflationary pressures. However, she emphasized that this effect would depend on how widely AI is adopted.