IMF warns EU AI can lift productivity but strain power and inequality

The IMF is effectively telling Europe that AI is both its next growth engine and its next systemic risk. A 1 percent productivity boost over five years is meaningful in a low growth bloc, but the paper highlights three structural choke points: worker displacement, power infrastructure and strategic dependence on U.S. and Chinese models. That combination will push EU policymakers toward treating frontier AI as a macroeconomic and industrial policy issue, not just a tech regulation problem.

For the AGI race, this widens the policy divergence between the U.S. and Europe. Brussels is already rolling out the AI Act and a EuroHPC initiative for startups; now finance ministers are being told that completing the single market, hardening grids and investing in indigenous AI capacity are prerequisites for capturing AI value. That could accelerate funding for European compute, foundation models and safety research, even as it raises political barriers to relying on U.S. cloud giants. The risk is that energy and labour constraints slow down large scale deployments just as U.S. and Chinese labs push ahead.