IMF tells EU ministers AI could boost growth but increase economic strains

(Refiles to fix typo in paragraph 7)

By Jan Strupczewski

DUBLIN, Sept 19 (Reuters) - Artificial intelligence could lift European productivity by about 1% over five years, but risks widening inequality, straining power networks and increasing dependence on foreign technology unless governments deepen economic integration, an International Monetary Fund paper said.

The background note, prepared for an informal meeting of European Union finance ministers in Dublin on September 18-19, said the benefits and costs of AI were likely to be distributed unevenly across countries, regions and workers.

It said completing the EU single market would help spread AI adoption and its gains more evenly across the 27-nation bloc.

The paper echoes concerns raised by former European Central Bank President Mario Draghi and the European Commission that Europe's fragmented capital, labour and energy markets are holding back investment and innovation.

The IMF estimated that around 60% of workers in advanced European economies are employed in occupations highly exposed to AI. While some could become more productive through AI tools, others faced displacement as routine tasks become automated, it said, particularly in jobs where AI is more likely to replace labour than complement it.

The paper said Europe's data centres already consume roughly 3% of the continent's electricity and that demand would rise sharply as AI use expands. Major technology hubs such as Frankfurt, London, Amsterdam, Paris and Dublin are among the areas most exposed, with data-centre clusters already putting pressure on local power networks.

To address that, the EU should invest in cross-border grid infrastructure and deepen integration of the European energy market, the IMF said.

The paper also warned that Europe risks developing another strategic dependency because the US and China dominate the development of AI models. It said Europe would need significant investment in its own AI industry to avoid becoming reliant on foreign technology.

AI's gains are also likely to be unevenly distributed across and within the EU, the paper said. More advanced economies are expected to benefit disproportionately because they are better prepared for and more exposed to the technology.

(Reporting by Jan Strupczewski. Editing by Mark Potter)