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The International Monetary Fund (IMF) issued a warning on Thursday, stating that the gap between the gross domestic product (GDP) of Europe and the US is expected to widen further by the end of the decade. The IMF raised concerns about the lack of business dynamism in Europe.
According to the latest economic outlook report for Europe by the IMF, factors such as an ageing workforce and low productivity growth are projected to cause a decrease in Europe’s annual GDP growth rate to 1.45% by 2029. In comparison, the US is expected to have an average growth rate of 2.29% over the same period.
The IMF highlighted that the US has been outpacing Europe in terms of growth since the global financial crisis, especially post the Covid-19 pandemic. Alfred Kammer, director of the IMF’s Europe department, pointed out longstanding issues in Europe’s economy, emphasizing that GDP per worker in the US, Germany, France, Italy, and Spain was equal at the start of the millennium. However, there has been a significant widening gap over the years, with per worker income in these European countries now around 20% lower than in the US.
The pandemic further exacerbated Europe’s economic challenges, resulting in a drop in average growth rate compared to the previous two decades. The IMF attributed Europe’s poor prospects to low business investment, limited cross-border activity, and notably lower productivity levels than the US. The fund also noted a significant productivity gap in the technology sector between the US and Europe.
Additionally, the IMF highlighted the underdeveloped venture capital industry in Europe compared to the US, contributing to a lack of business dynamism on the continent. The report supported the call for increased investment and competitiveness in the EU, urging for more measures to integrate Europe’s economy.
While acknowledging the difficulties in achieving greater integration, Kammer emphasized the importance of a larger and more integrated single market in Europe for goods, services, and capital to unlock the region’s full growth potential. The IMF stressed the need for Brussels to take further actions towards economic integration, despite facing challenges from national and vested interests.
This article has been revised to clarify that the IMF’s comparison was based on GDP per worker between the US and specific European countries.