European Job Market Faces Double Hit from AI Automation and Economic Slowdown

2026-01-12 data

Brussels, Monday, 12 January 2026.
European companies are dramatically slowing hiring as AI automation reshapes the workforce while economic growth stagnates. Banking alone could lose 200,000 jobs by 2030, representing 10% of major European banks’ workforce. German manufacturers plan widespread cuts, with over one-third of companies targeting job reductions in 2026. The shift marks a stark reversal from post-pandemic labor shortages, as workers who once had unprecedented job mobility now face a cautious market where AI increasingly handles tasks previously done by humans.

Banking Sector Braces for Massive AI-Driven Workforce Restructuring

The financial services industry stands at the epicenter of this employment transformation. A Morgan Stanley analysis projects that more than 200,000 European banking jobs could disappear by 2030 as lenders embrace AI and close physical branches [1][3]. This represents approximately 10% of the workforce at 35 major banks across the region [1][3]. The cuts will hit hardest in back-office operations, risk management, and compliance—areas where algorithms can process data faster and more effectively than human workers [1][3]. Banks anticipate efficiency gains of up to 30% by applying AI to these traditionally labor-intensive functions [4]. Some institutions have already begun implementing these changes. Dutch lender ABN Amro announced plans in November 2025 to cut 20% of its workforce by 2028 [4], while Société Générale’s leadership has adopted a “nothing is sacred” approach to organizational restructuring [1][3].

Manufacturing Downturn Accelerates Job Market Weakness

Germany’s manufacturing sector, long considered the backbone of European industry, faces particularly severe challenges. Government data reveals that high energy costs, weak export demand, and competition from China have already eliminated more than 120,000 positions [1]. The eurozone’s Manufacturing Purchasing Managers’ Index fell to 48.8 in December 2025, indicating continued contraction [1]. More than one in three German companies plan to cut jobs in 2026 [1], reflecting the dual pressures of economic headwinds and technological transformation. The broader European job market reflects this pessimism, with the eurozone labor market projected to grow at just 0.6% in 2026, down from 0.7% in 2025 [1]. This represents a dramatic decline from three years ago when the eurozone created 2.76 million new jobs with 1.7% growth [1].

AI Adoption Accelerates Across European Industries

The speed of AI implementation varies significantly across European countries, but the trend is unmistakably upward. Harmonized surveys conducted by Deutsche Bundesbank, Banca d’Italia, and Banco de España in 2024 revealed stark differences in adoption rates: 47% of German firms used AI, compared to 31% of Spanish firms and 13% of Italian firms [7]. Generative AI adoption showed similar patterns, with 33% penetration in Germany, 26% in Spain, and just 5% in Italy [7]. Between 2024 and 2025, GenAI adoption almost doubled in Germany to 58% and rose sharply in Italy to 24% [7]. However, intensive use remains limited, with less than 4% of firms across all countries making intensive use of GenAI [7]. The technology shows strong complementarities with cloud computing and robotics, suggesting a comprehensive digital transformation rather than isolated AI deployment [7].

Regulatory Framework Emerges to Govern AI in Employment

European regulators are moving quickly to establish guardrails for AI in hiring and employment decisions. The EU AI Act, implemented in August 2025, classifies AI hiring tools that screen, rank, or evaluate candidates as “high-risk” systems requiring fairness, transparency, documentation, and human oversight [2][8]. The legislation has already banned emotion detection in video interviews, biometric personality inference, and social scoring as of February 2025 [2]. Tools that create candidate scores or predictions about fit and success face extra scrutiny to ensure they are not biased [2]. Non-compliance carries severe penalties of up to €35 million or 7% of global revenue [2]. US states are implementing similar measures, with New York City requiring independent bias audits annually for automated hiring tools and advance notice to candidates, while Colorado and Illinois mandate disclosure of AI use and ban discriminatory automated decisions [2]. These regulations emphasize “AI-in-the-loop” rather than “AI-in-charge,” requiring human oversight and accountability in all employment decisions [2].

Worker Sentiment Shifts Amid Changing Job Market Dynamics

The psychological impact of these changes is already visible in worker behavior and expectations. Angelika Reich, a leadership adviser at Spencer Stuart, notes that “fewer job vacancies and a tougher economic climate naturally make employees more cautious about switching jobs” [1]. This represents a significant shift from 2022, when McKinsey research found that a third of European workers were considering quitting within three to six months [1]. The current environment has created particular challenges for younger workers entering the job market. Bettina Schaller Bossert, president of the World Employment Confederation, observes that “a lot of young graduates believe there is no future in the automotive sector. They’re not interested in pursuing careers [with European carmakers] even though there are fantastic new opportunities” [1]. An EY study published in July 2025 found that 25% of European workers fear AI could put their jobs at risk [1]. In Germany, the Nuremberg-based Institute for Employment Research projected that 1.6 million jobs could be reshaped by or lost to AI by 2040 [1]. However, survey data suggests a more nuanced reality: approximately 80% of Spanish firms in 2024 believed AI would not affect their overall employment levels [7], indicating that while AI will reshape work, complete job displacement may be less common than feared.

Bronnen

AI automation European employment