Christine Lagarde, President of the European Central Bank (ECB), presented at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament in Brussels on September 28, 2026. Her speech highlighted the significant potential of artificial intelligence (AI) to reshape Europe's economic landscape, emphasizing that firms are expected to allocate approximately 10% of total investment to AI by 2026, with AI-related borrowing comprising about a quarter of credit growth to businesses.
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Lagarde acknowledged AI's ability to enhance productivity, competitiveness, and living standards in Europe. However, she noted that its effects on investment, labor markets, and inflation are already being felt and are relevant to monetary policy considerations. She emphasized the importance of managing associated risks while capturing the potential benefits of AI.
The euro area economy showed resilience amidst challenges such as the energy crisis, with GDP growth remaining solid in the second quarter of 2026 across various countries and sectors. Manufacturing has benefited from increased government spending on defense and infrastructure, while a rebound in consumer confidence has aided the services sector. The labor market remains strong, with the unemployment rate recorded at 6.4% in July. ECB projections estimate the economy will grow by 0.9% in 2026, 1.4% in 2027, and 1.5% in 2028.
Headline inflation climbed to 3.2% in August from 2.9% in July, driven largely by higher energy prices. However, food inflation decreased slightly. The ECB anticipates that inflation will average 3.0% in 2026, with expectations for a gradual decline to 2.1% by 2028. Despite ongoing uncertainty in the economic outlook, the ECB has raised interest rates by 25 basis points to stabilize inflation toward the 2% target in the medium term.
Lagarde further explored the transformative nature of AI on the economy. While AI can improve productivity and lower costs over time, the actual impact will depend on its adoption rates across various sectors. Currently, only 7% of euro area firms report significant use of AI. Europe must invest in innovation, computing capacity, and data infrastructure to fully realize AI's potential.
The impact of AI on labor markets is also critical, as it reshapes job tasks and skills needed by firms. While the overall employment outlook remains positive, with many firms hiring, there is a distinction based on how AI is utilized. Those employing AI for innovation tend to hire more, whereas those mainly seeking to cut costs may reduce employment.
Lagarde outlined several strategic priorities for Europe to harness AI effectively: enabling innovation through deep markets and skilled labor, building greater independence in critical technology sectors, and promoting widespread and effective AI adoption. She concluded with a call for vigilance in understanding AI's effects on economic factors to maintain price stability, stating that while uncertainty surrounds AI's future, it should not hinder proactive measures.