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Ah, the perennial dance of numbers and forecasts. The International Monetary Fund (IMF) has, in its latest communiqué concerning the European economy, raised a rather worrisome flag. Indeed, by the close of the decade, expectations suggest a chasm widening between the Gross Domestic Product (GDP) of our European friends and that of our transatlantic cousins in the United States. This divergence, as noted, stems chiefly from Europe’s apparent "lack of business dynamism," a point iterated with some concern this past Thursday.
Now, delve a bit further, and it becomes apparent that the IMF has pointed to a couple of rather important matters. There’s the ageing workforce, naturally, which we’ve come to expect. Moreover, Europe seems mired in a quagmire of modest productivity growth, which is not doing its economic prospects any favours. Consequently, it is anticipated that the continent’s GDP growth will plod along at a rather pedestrian rate of 1.45 percent per annum until 2029. Meanwhile, the United States is projected to enjoy a somewhat brisker pace of 2.29 percent over the same horizon.
It’s not merely a recent development, mind you. Since the global financial fracas and that rather unsettling ordeal we know as the Covid-19 pandemic, American growth appears to have capered ahead, leaving Europe somewhat in its dust. Alfred Kammer, who presides over the IMF’s Europe department, described Europe’s woes as “fundamental” and rooted in history. At the dawn of the millennium, GDP per worker, when adjusted for purchasing power, was notably on par with the US in nations like Germany, France, Italy, and Spain. However, as the decades unfurled, this parity dissolved into a 20 percent disparity, much to Europe’s chagrin.
For a bit of context, our friends at the Financial Times report that Kammer noted an exacerbation during the pandemic. Europe, thus, found its growth rate dropping by about 0.6 percentage points compared to the two decades leading up to 2019. In a contrasting twist, American projections for up to 2029 have actually seen a slight uptick from previous decades.
Let us not fail to mention the observations regarding business investments and cross-border activities. Levels in these areas are deemed rather tepid in Europe, thus contributing to a productivity shortfall when pitted against the United States. One area where this disparity is most apparent is technology. The IMF made note that since 2005, European tech productivity has stagnated, while the US saw an impressive growth spurt of nearly 40 percent. Additionally, Europe’s venture capital industry sizes up at just a quarter of its American counterpart, indicating yet another reason for the lack of "business dynamism."
Moreover, the IMF report called attention to the smaller pool of fledgling companies in Europe, those that survive a mere five years or less, amounting to around half of those in the US. The former European Central Bank head, Mario Draghi, had recommended further investment and competitive zest within the EU, a notion the IMF has given its nod. This brings the conversation back to the quintessential European issue: integration, or rather the lack thereof. The IMF strongly advised Brussels to bolster measures towards a more cohesive regional economy. A sizable and consolidating single market—the likes of which encompass goods, services, and capital—could potentially release untapped growth potential across the continent.
Finally, it’s recognised that these ambitions aren’t without their hurdles. Kammer was quite frank about the challenges of regional integration, attributing the delay to "national and vested interests" standing in the way of meaningful progress. It seems we know the solutions, as Kammer put it, but getting them across the cart is quite another endeavour altogether.
This article has been amended to clarify that the IMF was making a comparison between the US and certain European countries based on GDP per worker.
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For more insights, you could explore related discussions on BBC’s report, or perhaps, the World Bank’s global outlook.
