Over the past few years, artificial intelligence (AI) has moved to the centre of global economic attention, but its economic impacts, especially on European businesses, are yet to be clearly understood. In this paper, we examine AI adoption across European countries and investigate its relationship with labour productivity.

We find that, despite an overall average increase in AI adoption in Europe in 2021-2025, substantial heterogeneity remains across countries, sectors and firm sizes, with clear evidence of small and medium-sized enterprises (SMEs) lagging behind in AI adoption – a finding universal to all countries considered. Using a fixed-effects regression framework, we find evidence of a positive and significant relationship between AI adoption and labour productivity, pointing to (i) AI-based image recognition and (ii) AI-based process automation as the technologies most significantly linked with higher labour productivity, and marketing and sales as the area in which labour productivity increase is most visible. We finally compile best practices from European chambers of commerce and industry, and provide policy recommendations to strengthen AI adoption by European companies.