IMF Blog,update

 

Dear MARIA, We just published a new blog—read the full text below. How Europe Can Capture the AI Growth Dividend (Credit:Gorodenkoff/iStock by Getty Images)  ByFlorian Misch, Ben Park, Carlo Pizzinelli, Galen Sher  Can artificial intelligence provide a much-needed boost to Europe’s economic productivity? Use of AI is spreading much faster than earlier technologies, such as the personal computer and the internet. And AI promises significant productivity jumps by automating many tasks and enhancing human capabilities.   However, achieving large gains will hinge on European countries’ commitment to growth-enhancing reforms and willingness to being flexible on regulation, to help the new technology to flourish. Absent reforms, our research shows that the medium-term gain in productivity from the AI alone would vary considerably across countries, and for Europe as a whole would be rather modest: about 1.1 percent cumulatively over five years. With pro-growth reforms, though, much bigger gains are possible over the longer run. How AI helps productivity now   Three factors drive the economy-wide and one-off productivity effects of AI adoption: Exposure to AI of different sectors and occupations—the degree to which AI can automate or augment tasks; Companies’ incentives to adopt AI, particularly potential savings in labor costs; Average productivity gains across occupations. Contrary to past automation technologies, AI exposure is especially large in professional, managerial, or administrative work that is non-manual and often knowledge-based, like finance or software development. European countries would benefit to different degrees. Higher-income countries typically gain more because they have more white-collar services, leaving them more exposed to AI. They also have higher wage levels which increase incentives to adopt labor-saving technologies. For example, Norway could gain as much as 5 percent in the most optimistic scenario.   Gains for lower-income economies will likely be more limited, which means that AI could temporarily widen productivity disparities within Europe. For instance, Romania could add just below 2 percent even in an optimistic scenario. Productivity gains could be larger in all countries if the cost of AI systems falls more quickly. Strong upsides over longer term   The improving capabilities of AI models (as evidenced by various tests) suggest that gains could be much larger over a longer time horizon. AI could have more transformational effects by creating new industries and value chains. It could also boost productivity growth more permanently through accelerating research and development (referred to in literature as Invention in the method of inventing). For example, there is already evidence that AI accelerates and enhances pharmaceutical drug development.   Recent work estimates the long-run annual labor productivity growth impact when considering that AI is not only used to produce goods and services but also to create new commercial knowledge. In the United States, annual productivity growth could be boosted by 1 percent annually, while for Europe the gains could also be substantial but not as high. The analysis points to longer lasting effects which imply dramatically larger gains than the short-term effects we estimated. These predicted long-term benefits could even be conservative: When estimating the impact of technology, expectations are often too optimistic about the immediate effects and too pessimistic about lasting contributions (Amara's Law).   How Europe should respond   To take full advantage of AI’s potential, Europe must focus on removing the barriers that limit diffusion of skills and technology and the growth of companies. The recent Regional Economic Outlook for Europe highlights several policy priorities.   Deepening the European Union single market will be critical to counter fragmentation along national borders. The goal must be to make it easier for innovative firms in the field of AI to access a broader, EU-wide customer base. This requires removing barriers to cross-border services, opening up protected sectors, and harmonizing standards – all of which can help reduce the cost of developing and adopting AI tools.   Funding the risky investments that underpin AI development (often based on intangible assets like software and intellectual property) requires stronger and more integrated financial markets. A well-functioning Capital Markets Union can increase the availability of venture capital by channeling more savings to early-stage, risky technological ventures in AI. Improving the recognition and valuation of intangibles assets such as intellectual property related to AI in financial statements and resolution regimes would also help mobilize private financing for innovation.   Flexible labor markets and portable social protection are vital to help workers transition toward sectors and firms that are expanding thanks to AI. For instance, simplifying degree recognition, enhancing housing affordability, and ensuring pension portability can facilitate movement to where opportunities from AI arise.   Creating a more efficient energy market is another key ingredient. Affordable and reliable electricity will support data centers that power AI systems. Securing competitive and low-carbon energy supplies through better market integration will support both AI infrastructure and Europe’s broader green transition.   Finally, regulation needs to remain flexible. While addressing important data protection, ethical, and safety concerns related to AI, regulation will need to be dynamically calibrated to navigate the trade-offs between addressing risks and enabling growth through AI adoption. Otherwise, even some of the moderate productivity dividends from AI adoption over the next few years could be lost.   Reaping the full potential of AI depends on policy choices that Europe makes today. Even moderate AI productivity gains in the coming years would be significant relative to Europe’s anemic economic growth prospects. Capturing larger, longer-term benefits—and keeping up with the United States—will hinge above all on Europe’s ability to move fast in building a more dynamic and integrated single market. Read the blog Thank you again for your interest in the IMF Blog. Please write to us directly and let us know your thoughts. We would love to hear from you.   Jeff Kearns  Managing Editor | IMF Blog   jkearns@IMF.org Dear MARIA, We just published a new blog—read the full text below. Policy Actions Can Reinforce Growth Progress in Many G20 Economies (Credit: IMF Photo/Lena Mucha)  ByNicolas Fernandez-Arias, Shushanik Hakobyan  Since the Group of Twenty’s foundational Pittsburgh conference in 2009, progress toward its goal of strong, sustainable, balanced, and inclusive growth has been modest.   While G20 economies have shown remarkable resilience in navigating multiple shocks, medium-term growth prospects have moderated to just 2.9 percent, the weakest since the global financial crisis. At the same time, disinflation remains incomplete for many, and public debt rose to a record 102 percent of GDP last year. Furthermore, excessive external imbalances are widening again.   Still, there are encouraging signs. Our latest annual report to the group—whose members account for about 85 percent of global economic output—points to some positive developments over the past year.   A survey of IMF country teams indicates that many G20 economies made progress toward stronger growth, including more than half of emerging market economies. Improvement has been substantial in some cases, such as Germany, where growth momentum was supported by reforms to fiscal rules.   Meanwhile, falling inflation and fiscal consolidation efforts are improving the sustainability of growth for most G20 advanced economies and half of the European Union. But this is only part of the story. Progress over the past year has been somewhat muted along the final two dimensions: Balanced growth—without the buildup of internal or external imbalances, such as increasing reliance on one sector or on external demand—is proving elusive across the G20. Moderate deterioration was assessed in China and the United States because of widening excess current account balances. Inclusive growth—ensuring the economy benefits everyone—improved only slightly, particularly in G20 advanced economies and in the African Union, which joined the group in 2023. With near-term uncertainty remaining high and an extensive list of headwinds, the outlook for securing strong, sustainable, balanced, and inclusive growth in the coming years is challenging. Against this backdrop, it’s more important than ever to reinforce momentum, even if it’s just tentative, across all dimensions of growth.   Smart fiscal policy is at the center of the challenge. Governments need to rebuild their fiscal buffers to contain rising debt, while meeting growing spending needs. Fundamental economic reforms are also needed to aid domestic rebalancing and foster stronger growth.   Of course, these structural reforms vary across countries. But to help guide prioritization and sequencing, IMF country teams have identified measures with the highest expected growth impact. Reforms to labor market institutions, in addition to improved fiscal policies and business regulations, consistently ranked highest across the G20 and in the European Union. For African Union members, the largest potential gains lie in foundational governance improvements, as well as fiscal reforms.   The payoff from concerted action by G20 economies would be significant. Simulations suggest that implementing the identified highest-impact structural reforms, alongside recommended macroeconomic policies, could raise growth across the group by about 7 percentage points cumulatively over the next decade. This would benefit emerging market economies the most.   Moreover, debt burdens would decline by more than 8 percentage points of GDP within five years for countries with limited fiscal space, reflecting the combined impact of recommended fiscal adjustments and structural reforms.   And these concerted reform efforts would also support domestic rebalancing by helping narrow current account balances, with large improvements possible for both major surplus and deficit economies.   —This blog is based on the 2025 G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth, prepared by IMF staff. For additional information, see also the new online SSBIG dashboard. Read the blog Thank you again for your interest in the IMF Blog. Please write to us directly and let us know your thoughts. We would love to hear from you.   Jeff Kearns  Managing Editor | IMF Blog   jkearns@IMF.org Dear MARIA, We just published a new blog—read the full text below. Sub Saharan Africa: Steady Growth Amid Fiscal Challenges (Credit: IMF Photo/Amanuel Sileshi)  By Abebe Aemro Selassie, Amadou Sy  Over the past six months the realignment of global priorities and increasingly turbulent external conditions have continued to test sub-Saharan Africa. Yet the region’s economies are proving resilient. As our recent economic outlook for the region shows, economic growth is projected to hold steady at 4.1 percent this year, with a modest pickup to 4.4 next year. Such steadiness reflects years of important reform efforts across key economies. The region is home to several of the world’s fastest growing economies—Côte d’Ivoire, Ethiopia, Rwanda, and Uganda. Yet, resource-dependent and conflict-affected states are struggling to sustain momentum. For them, gains in income per person remain modest—around 1 percent a year on average, and less in the poorest countries.    This divergence is partly a result of commodity markets pulling in different directions: oil prices slid since April, while cocoa, coffee, copper, and gold prices are up. Countries are also facing high borrowing costs, though lower than earlier this year. Angola, Kenya, Nigeria and the Republic of Congo recently returned to the international bond market.   The global trade policy and aid landscape has also deteriorated. Tariffs on exports to the United States have increased, and preferential access to the market under the African Growth and Opportunity Act has expired. While the amount of tariff-exposed trade is relatively modest for most countries in the region, the effects of trade tensions are likely to be felt through dimmer global growth prospects and volatile commodity prices.   Meanwhile, the sharp drop in foreign aid is hitting poorer and fragile states hardest. Governments trying to reprioritize spending also confront capacity constraints and limited room for maneuver in budgets.   Resilience tested   While sub-Saharan Africa’s resilience is encouraging, vulnerabilities have been building up and will continue to test the region. Many governments now face a challenging mix of fiscal, monetary, and external pressures that threaten hard-won reforms and could complicate responses to future shocks.   Debt service costs are rising fast, squeezing budgets and the space for development spending. Fiscal fragility continues to trouble the region, particularly among low-income economies. Twenty countries are now either in or at high risk of debt distress. And, as governments shift toward domestic borrowing, banks are more exposed to government debt risk. Inflation, though easing overall, still exceeds 10 percent for about a fifth of the region’s economies. And while some countries have rebuilt international reserves, they remain stretched across much of the region.    Against this difficult backdrop, we see two broad policy priorities.    Raising revenue   First, raising more revenue. The region’s development needs remain immense, yet external financing is scarce and debt burdens heavy. Mobilizing domestic revenues at home is an essential route to lasting fiscal space, while better debt management can lower borrowing costs and widen access to funds. Boosting tax collection has long been a challenge for the region’s public finances. Past efforts show what works—and what does not. Effective reform demands attention to both tax policy (what and how much to tax) and tax administration (how to collect). Countries that have made headway—such as Ghana, Rwanda and Tanzania—did so by digitizing their tax systems, piloting reforms, supporting tax officials, and engaging citizens. Others learned that limited public support can derail poorly designed levies. The lesson is clear: progress depends as much on trust and sequencing as on technical fixes.   Given that people are more willing to pay taxes when they see public money spent wisely, governments need to pair revenue reform with visibly improved service delivery, tighter spending controls, and efforts to tackle corruption and boost accountability. Without such enhancements, revenue gains will prove fleeting.   Managing debt   Improving debt management is also essential. Transparent, credible debt management institutions can cut borrowing costs and attract investors. Publishing comprehensive debt data, engaging openly with creditors, and strengthening approval and oversight procedures are key first steps.   Better debt management also supports access to innovative financing. Instruments such as blended finance, which combines concessional and private funds, can channel investment into green energy, health, and infrastructure. Agreements between governments and creditors to replace existing sovereign debt with liabilities that include spending for a specific development goal, known as debt-for-development swaps, can foster social or environmental gains—and have been tested in Côte d’Ivoire among other places.    But to scale up such initiatives, governments need credible regulation, transparent data, and simplified procedures. These tools, used correctly, can help lay a foundation for more resilient and inclusive growth.   —This blog is based on the October 2025 Regional Economic Outlook for sub-Saharan Africa, “Holding Steady,” prepared by Cleary Haines, Athene Laws, Maurizio Leonardi, Nikola Spatafora, and Felix Vardy under the guidance of Montfort Mlachila, Amadou Sy and Antonio David. Read the blog Thank you again for your interest in the IMF Blog. Please write to us directly and let us know your thoughts. We would love to hear from you.   Jeff Kearns  Managing Editor | IMF Blog   jkearns@IMF.org Stay connected with the International Monetary Fund: