The North–South regional divide in AI adoption
Artificial intelligence is rapidly spreading across Europe’s business landscape. In just two years, the proportion of firms deploying AI has risen from 8% to 20%, and the number using multiple AI technologies has also jumped. Yet, beneath this increase lies a fragmented picture, with adoption differing markedly by sector, geography, and firm structure.
Northern countries with large, productive firms—specifically in the ICT and business services sectors—are leading adoption, leveraging strong digital infrastructure and innovation capacity. Conversely, implementation remains lower in Southern and Eastern Europe. Within countries, we also find early evidence that major city regions have a premium on national averages in AI use.
This emerging ‘urban AI premium’ partly reflects sector effects, as major cities have higher concentrations of AI-intensive ICT and business services sectors. But there are nuances. In business services, adoption appears to be more location-driven, with firms in large cities benefitting from advanced digital infrastructure and global networks. In ICT, adoption in major cities broadly mirrors national trends, suggesting that implementation is being driven more by industry-wide competitive pressures than by location.
Early data suggest AI may already be influencing productivity and labour market trends. Regions with higher uptake have recorded faster productivity growth alongside softening labour demand, particularly in the ICT sector. While the evidence remains preliminary and should be interpreted cautiously, the direction of travel is nonetheless consistent with AI beginning to reshape how firms operate and hire.
