IMF warns that the gap between the US and European gross domestic products will widen by the end decade. It also sounded the alarm over the “lack” of business dynamism on the continent.
In , the IMF’s latest Economic Outlook for Europe, it said that the IMF predicted that the IMF would lower the annual GDP growth rate of the continent for the next 10 years to 1.45 percent due to an ageing population and low productivity growth.
The average growth rate in the US is 2.29 percent over the same time period.
Since the global financial crises, and especially since the Covid-19 epidemic, the US has grown faster than Europe.
Alfred Kammer of the IMF’s Europe Department said that the continent has “fundamental problems” that date back decades. He also stressed that the GDP per worker in the US, Germany France, Italy, and Spain was the same at the turn-of-the millennium, after adjusting for purchasing power.
He told the Financial Times that the gap between the US and the four European countries has grown by 20 percent in the last two decades. It’s a huge gap that didn’t exist previously, but does now.
Kammer said that the pandemic temporarily worsened the problem. The IMF estimates that Europe’s growth rate average has fallen by 0.6 percentage point compared to the 20 years up to 2019.
In contrast, the projected growth in the US for the next 10 years, up to 2029, has slightly increased compared with previous decades.
IMF stated that Europe’s poor future prospects are linked to factors like low levels of investment in business and cross-border activities, as well as much lower productivity than the US.
The fund noted that the difference between the productivity levels of the US and Europe was evident in all sectors but particularly so for technology.
Since 2005, the European [tech] productivity has stagnated. The IMF stated that it has grown by almost 40% in the United States.
It was also noted that the continent’s venture-capital industry, which is a quarter of what it is in the US, contributed to “the lack of business dynamism” in Europe.
IMF: In Europe, “only half as many new companies exist in Europe that have been around for less than five years” compared to the United States.
The fund backed the former ECB President Mario Draghi’s report published in September. It argues that EU should invest more and improve competitiveness.
The European Commission called on Brussels for more action to integrate the regional economy.
The IMF stated that “for Europe to reach its full potential for growth, it is necessary to have a larger, more integrated market, especially in goods, services, and capital.”
Kammer did admit that it was “difficult” to achieve more integration.
“We know” . . Kammer added that “national interests and vested interest are holding progress back”.
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