ECB's Lane Says AI Boom Is Tightening Europe's Financing

European Central Bank chief economist Philip Lane said expectations of future productivity gains from artificial intelligence are pushing up long-term interest rates and tightening financing conditions in Europe, Econostream Media reported. Lane made the remarks on Friday at the Financial Times’ Economics Show, according to the outlet.

He warned that the effect could hold back investment across sectors in the euro area, even as AI-related activity is already supporting lending to companies.

AI pricing lifts long-term rates

According to Econostream, Lane said markets are increasingly pricing in stronger AI-driven productivity growth in the early 2030s, which is contributing to higher long-term real interest rates. He said the gains could become visible around that time, possibly leaving real rates structurally higher.

Lane pointed to a substantial AI investment boom in the United States, while Europe is facing the higher borrowing costs without a comparable expansion in domestic investment. “From our point of view, we have the higher rates,” he said, describing this as a tightening of conditions in Europe that will slow investment.

He said the squeeze could affect European firms investing in AI, while large US technology companies with strong balance sheets are still able to borrow. Lane listed higher global rates, the AI boom and heavy government borrowing in many countries as forces driving rates up, the outlet reported.

Credit growth gets an AI boost

Lane also said AI is already supporting euro area activity, particularly investment and credit growth. Lending to firms is growing at about 4%, compared with about 3% without AI-related activity, he said, according to both Econostream and ChainCatcher. ChainCatcher reported that AI financing accounts for about a quarter of corporate loan growth in the euro area this year.

“Without AI, you wouldn’t see credit dynamics being at the level where they are,” Lane said, as quoted by Econostream. He added that European exports of AI-related equipment have been stronger than expected and that firms are keeping investment plans they might otherwise have scaled back. ChainCatcher reported that Lane said AI industries remain a small share of the overall economy.

What’s next

Lane said Europe needs more equity financing for innovative firms rather than relying mainly on bank lending, adding that he would have preferred risk-absorbing finance such as equity to play a bigger role. Both outlets said this would help AI companies grow faster.

Neither report carried comments from Lane on the ECB’s next interest rate decision. Separately, ECB policymaker Nagel of the Bundesbank said on Friday that another rate increase was highly probable if current conditions persisted, Econostream reported, while Newsquawk cited reports that ECB policymakers see a December hike followed by a pause.

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