Stay informed with free updates
Simply sign up to the European economy myFT Digest — delivered directly to your inbox.
The International Monetary Fund (IMF) has warned that the gap between European and US gross domestic product is expected to widen further by the end of the decade due to the continent’s “lack of business dynamism”.
In its latest economic outlook for Europe, the IMF stated that factors such as an ageing workforce and low productivity growth would contribute to reducing the continent’s annual GDP growth rate to 1.45% over the next 10 years, compared to the US’s estimated growth rate of 2.29% over the same period.
American economic growth has surpassed Europe’s since the global financial crisis, especially following the Covid-19 pandemic.
Alfred Kammer, director of the IMF’s Europe department, emphasized that Europe has faced fundamental issues for decades, with GDP per capita adjusted for purchasing power being equal in the US and the EU at the beginning of the millennium. However, the gap has since widened, with per capita income in Europe now 30% lower than in the US.
The IMF noted that the pandemic has further exacerbated Europe’s economic challenges, with the continent experiencing a decrease in average growth rate compared to the period before 2019, while the US has seen a slight increase in projected growth.
The IMF attributed Europe’s poor economic prospects to factors such as low levels of business investment, limited cross-border activity, and lower productivity compared to the US. The fund highlighted the significant productivity gap between the two regions, particularly in the technology sector.
Additionally, Europe’s venture capital industry, which is much smaller than in the US, contributes to the lack of business dynamism in the region. The share of new companies surviving for five years or less is also lower in Europe compared to the United States.
The IMF supported former ECB president Mario Draghi’s recommendations for Europe to invest more and enhance competitiveness. The fund urged Brussels to implement measures to promote greater economic integration within the region.
According to the IMF, achieving more integration in Europe is challenging due to national and vested interests hindering progress.