Lagarde tells European lawmakers AI could reshape growth, jobs and inflation

Christine Lagarde told European lawmakers on 28 September that artificial intelligence could raise euro-area productivity and affect jobs, investment and inflation, but said its overall economic effect remains uncertain. The European Central Bank president said the scale and timing of any gains would depend on how widely and effectively firms adopt the technology. That uncertainty matters to an ECB assessing both growth and price pressures after raising interest rates earlier this month.

In her published remarks to the European Parliament’s Committee on Economic and Monetary Affairs, Lagarde said firms were expected to devote around 10% of total investment to AI in 2026. She also said AI-related borrowing already accounted for roughly a quarter of credit growth to firms. Those figures were cited in her speech; they do not establish how much productivity the spending will produce.

Adoption is rising, but intensive use is limited

Lagarde cited an ECB survey in which 38% of euro-area firms reported at least moderate AI use by late 2025, while 7% reported significant use. She said investment was rising in Europe but still lagged the United States. Broader adoption, she argued, would require computing capacity, data centres and energy, alongside employee training and changes to business processes.

The distinction between trying AI and using it deeply appears in separate French evidence. A Banque de France survey questioned about 7,000 firms between late February and early April 2026. Among French firms with at least 20 employees, 67% reported using generative AI at the start of the year, mostly experimentally or to a limited extent. The surveyed firm sizes and sectors represented roughly half of the French economy.

What the productivity estimates mean

Lagarde pointed to an ECB staff estimate that AI could add about 0.3 to 0.4 percentage points to annual euro-area productivity growth over the next decade if adoption were swift and broad. Under slower adoption, the estimated gain would be about half as large. These are conditional projections, not gains already recorded across the economy. Lagarde said higher productivity could eventually lower firms’ costs and, all else equal, ease inflationary pressure over the long term.

The labour-market effect is similarly unsettled. Lagarde said more than half of workers already used AI in their jobs and that firms were, on balance, still hiring. According to the survey evidence she cited, firms using AI for research, innovation and new products tended to recruit, while those using it primarily to cut labour costs were reducing employment. She said the longer-term question is whether AI will mainly complement workers or replace them, with consequences for incomes, demand and inflation.

A Federal Reserve Bank of New York survey provides a separate, regional view of firms’ behaviour. In August, 61% of service firms and 51% of manufacturers surveyed in New York and Northern New Jersey said they had used AI in business processes during the preceding six months, up from 40% and 26% respectively in 2025. Yet three quarters of service firms and more than 90% of manufacturers described their AI investment as minimal to modest. Among adopters, the median share of workers using AI was 17% in services and 7% in manufacturing. Those US findings cannot be treated as a measure of euro-area employment effects.

Monetary policy and the risks ahead

Lagarde placed the AI discussion against an inflation backdrop. She said euro-area headline inflation rose to 3.2% in August from 2.9% in July, while energy inflation increased to 14.3% from 10.3%. Inflation excluding energy and food edged down to 2.4%. The ECB had raised its three key interest rates by 25 basis points earlier in September, she said, because it must assess whether the energy shock risks becoming embedded in broader inflation, rather than respond directly to energy prices alone.

The ECB’s September staff projections cited by Lagarde forecast euro-area growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. They put average headline inflation at 3.0%, 2.5% and 2.1% in those years. Lagarde also warned that a sharp reassessment of AI companies’ prospects and debt could cause market corrections affecting euro-area investors and the wider economy. For now, she said, the ECB needs to keep studying how AI changes productivity, investment, work and financial conditions as it pursues price stability.