How GenAI will help shape the global economy

Read the EY reports on how generative AI (GenAI) will make its mark in several distinct areas, from micro-level changes to macroeconomic shifts.

The economic impact of artificial intelligence (AI) and generative AI (GenAI) over the next decade across Europe, the Middle East and Africa (EMEA) will be both profound and profoundly uneven.

Building on previous US-focused EY research, a study of the EMEA region indicates AI implementation will likely lead to higher GDP and growth by enhancing productivity and investment, with a potential investment boom in the offing. Inflation and interest rates are expected to rise, although the increases are likely to be moderate.

Naturally, the coming changes will affect different regions in different ways. Wage disparities and variations in the potential for task automation or augmentation mean AI and GenAI will have much more impact across Europe, than in Sub-Saharan Africa. In turn, Western Europe leads the way on the continent, with varying impacts in other European regions, as well as the Middle East and North Africa.

The following EY reports explore the dynamic world of GenAI and its substantial effects on key economic trends across Europe, the Middle East and Africa. Download the reports to harness AI insights for strategic economic foresight and remain competitive and innovative in an evolving global economy.

Labor market dynamics

GenAI has the potential to significantly alter the labor market landscape, particularly affecting skilled occupations that involve pattern recognition and decision-making. While economic factors such as wage levels will play a crucial role in determining the extent of AI integration, the adoption of AI is expected to lead to job transformation rather than mere displacement.

Key insights:

• AI is set to transform the labor market in the US, Europe and globally. 

• Western Europe is expected to automate about 5% of tasks within the next decade. In contrast, AI implementation in other EMEA regions will be more modest, largely due to wage levels.
• Job transformation and the creation of roles requiring human ingenuity and social interaction are anticipated alongside task automation.

Investment and economic growth

The surge in GenAI adoption is on the horizon. It is set to substantially increase ICT investment by firms, especially in Western Europe. This investment could contribute significantly to gross domestic product (GDP) growth, however with notable disparities in economic benefits across regions. This trend signals a transformative era for businesses as AI becomes a strategic imperative for competitiveness and growth.

Key insights:

• AI adoption by firms is predicted to rise significantly, with Western Europe’s current adoption rate of 10.9% potentially reaching 77% by 2033.
• Mirroring the ICT boom, AI could spur an investment surge in the EMEA region, potentially increasing Western Europe's ICT investment by 1.7% of GDP.
• AI investment could increase GDP by 0.8%-1.9% in Western Europe, with the broader EMEA region seeing a potential $440 billion GDP increase by 2033.

Total Factor Productivity (TFP) and economic growth

GenAI is poised to enhance TFP within the EMEA region, facilitating economic growth through operational efficiencies and innovative product development. The benefits, however, are expected to be unevenly distributed, with variations based on regional differences in AI integration and task automation potential. As a result, the economic gains for most regions will align with the degree of TFP enhancement and additional investment. Central and Eastern Europe (CEE) is a potential outlier, benefiting more from increased external demand from Western Europe.

Key insights:

• AI is expected to enhance productivity in the EMEA region, with Western Europe potentially increasing its TFP by 0.9% to 1.8% by 2033.
• Taken together, the AI-driven increase in TFP and investment is projected to provide a significant boost to GDP growth, with Western Europe potentially increasing its GDP by 1.8% to 3.7% by 2033.
• Central and Eastern Europe may significantly benefit from increased external demand from Western Europe, potentially exceeding the direct impacts of AI-driven TFP and investment growth within their own region.

Inflation and interest rates

The anticipated impact of AI on inflation and interest rates is nuanced, with a slight rise in inflation expected, particularly in CEE, due to a modest excess of demand over supply. Interest rates are also anticipated to climb, influenced by excess demand, AI-induced productivity growth, heightened investment demand and rising inflation expectations. Policymakers and business leaders are urged to incorporate AI’s economic influence into their strategies, as these changes may affect monetary policy and the cost of capital.

Key insights:

• Inflationary effects are estimated to be between 0.1 and 0.25 percentage points for most regions, reaching up to 0.8 points in CEE. 

• Interest rates are expected to rise more significantly than inflation.

Sectoral and regional effects

GenAI is poised to be a transformative force in the global economy, with its potential to drive region- and sector-specific productivity enhancements that will redefine international competitiveness and reshape trade and capital flows. As sectors deeply integrated into global trade harness AI's cost reduction capabilities, they stand to gain a competitive edge, while disparities in technology adoption could alter investment patterns worldwide.

Key highlights:

• AI may raise global GDP by 1.4% by 2033, with the most growth in Developed Asia, Oceania, Western Europe and North America.
• Service sectors, particularly healthcare, education, administration and professional services, are poised to benefit significantly from AI technology implementation.
• GenAI will have the pivotal role in shaping international competitiveness, with sectors deeply involved in global trade, such as metal products and electrical equipment, likely to experience varying degrees of impact based on their GenAI adoption rates.
• Both the AI technology itself and the broader (indirect) economic effects of AI adoption will generate significant investment opportunities in fast-adopting countries, potentially leading to capital outflows from countries lagging behind in AI adoption.