As numerous players invest significant resources to achieve AI supremacy, it is expected that these investments will yield substantial returns in the future. What kinds of returns can we anticipate, and how does Europe stand in this global competition? These are the questions we will explore in this article.
Contribution of AI to the Global Economy
It is clear that AI is going to have a considerable impact on the global economy, but the question is how ‘considerable’? As a starting point, the Gross World Product (GWP) in 2022 was around $100 trillion. Bank of America predicts that global revenue associated with AI (software, hardware, services an sales) will increase by 19% annually, reaching $900 billion by 2026, up from $318 billion in 2020. If we extrapolate this prediction until 2030, the global revenue associated with AI by 2030 would be around $2 trillion. On the other hand, in their report ‘Sizing the Prize’, PricewaterhouseCoopers (PwC) predicts that AI could contribute up to $15.7 trillion to the global economy by 2030. To put this into perspective, that’s roughly half of the estimated $28 trillion gross domestic product (GDP) of the US for 2024.
The discrepancy between Bank of America’s and PwC’s estimates can be partially explained by the fact that PwC’s report calculates the total contribution of AI to the GWP, including productivity improvements, whereas Bank of America’s estimate focuses solely on revenue directly associated with AI.
Based on the PwC report, North America and China are expected to benefit the most, with a total $10.7 trillion of the economic gains, which represents 70% of the total economic impact. Europe follows as the third-largest beneficiary, with of $2.5 trillion of the gains.
Being European, one might be reasonably happy with the estimates, after all a 3rd place typically warrants a bronze medal. However, I’m concerned that the situation may be even more challenging for us Europeans than what the report suggests. For example, we don’t have any major global cloud-ecosystem tech-giants like Meta, Amazon, Google, Apple, Tesla etc. here in Europe, and those are some of the players that will most likely see the greatest benefits from the use of AI. The reason being that training of AI models, especially training of the so called foundation models, require copious amounts of data and computational resources, and that’s exactly what companies like Meta, Google or Apple have. The Magnificent Seven have so much data of our daily lives that their algorithms already probably know us better than we do. Now add advanced AI to the mix, plus a global reach of most of the planet, and you have a winning combination.
Even though Tesla primarily manufactures vehicles, I have included it in the list of cloud-ecosystem companies for compelling reasons. Tesla collects data through cameras and other sensors in its vehicles to develop advanced driving assistance and autonomous driving systems, granting them access to extensive data. Additionally, to maintain full control over their technological stack, Tesla has designed its own chips to execute AI models and other software components related to autonomous driving, infotainment systems, and more.
While Europe has traditionally excelled in designing and manufacturing high-precision mechanical systems, the same cannot always be said for software. Tesla not only made electric vehicles ‘sexy’—to use Elon Musk’s own words—but also pioneered the design of vehicles with a software-first approach. It was the first automaker to popularize over-the-air (OTA) updates widely.
From this perspective, European vehicle manufacturers are playing catch-up with their more agile counterparts. This is particularly significant because Germany, Europe’s economic powerhouse, has its automotive industry at the core of its economy. If the German economy were to falter, it could have a significant negative impact on the economies of the rest of Europe.
European Problems
European and even EU markets are fragmented. At the time of writing this article, the EU consists of 27 member states, each with its own economic and political characteristics and agenda, making it difficult to agree on policies. Imagine having 27 CEOs in your company, all trying to agree on what the company should do next.
The problem is further aggravated by the so-called Eurozone, especially during economic downturns: a fiscal policy suitable for one country might not suit another. We need a fiscal policy that accommodates all 27 countries.
Furthermore, the typical European response to improving competitiveness has involved deliberately lowering wages to enhance the relative competitiveness of EU states. Instead of focusing on increasing productivity, we have concentrated on reducing wages and fostering internal competition within the EU, thereby effectively reducing our domestic demand and hampering our social security systems.
A very interesting article related to this topic, written by Mario Draghi (president of the ECB from 2011 to 2019), titled ‘Radical Change – Is What Is Needed’, was published recently. The article can be summarized, using Mr. Draghi’s words, by saying that ‘we need an EU that is fit for today’s and tomorrow’s world.’
Europe’s reliance on imported energy sources, such as natural gas and oil, has been underscored by Russia’s unprovoked attack on Ukraine, leading to significant challenges, particularly for countries like Germany that heavily depend on imported gas.
Moreover, on top of everything else mentioned, Europe’s population is aging faster than that of North America, further hampering our competitiveness in the years to come.
Despite all the hardships, as a European, I hope that we can unite and devise a viable long-term plan to enhance our competitiveness in the AI era!