Page 4 - bne IntelliNews monthly magazine November 2024

4 I Companies & Markets bne November 2024
Europe’s economic competitiveness is badly lagging behind in productivity growth compared to the United States and China. Europe needs to adopt the reforms suggested by ex-ECB boss Mario Draghi in his recent report. / bne IntelliNews
Europe needs Draghi’s reforms to boost growth, says IIF
bne IntelliNews
Europe has a significant lag in productivity growth compared to the United States and China, said the Institute of International Finance (IIF) in a comment on October 3.
Despite comparable levels of capital spending, Europe has been falling behind the US and needs massive investment to close the gap and stay in the game in both labour productivity and total factor productivity (TFP), since the mid-1990s.
“The current state of the European economy is characterised by a loss of international competitiveness and a significant lag in productivity growth compared to China and the United States,” said Marcello Estevão, managing director and chief economist at IFF, in a note. “This sluggish productivity growth is not solely attributable to the pandemic, the Russia-Ukraine war, energy supply issues and geopolitical tensions. It also stems from the Euro area’s debt crisis and the lack of bold measures taken in its aftermath to bolster Europe’s productivity.”
The recent report from former Italian Prime Minister and ex-European Central Bank boss Mario Draghi underscores
www.bne.eu
the importance of boosting innovation, investment and structural reforms as key to addressing Europe’s productivity gap. As bne IntelliNews reported in a long-read article, Europe has lost its competitive edge.
“The focus of Mario Draghi’s report on European competitiveness, investment, innovation, technology and structural reforms are core to Europe’s growth challenge,” Estevão said. This comes as the European Union’s growth potential remains hindered by lingering effects of the Euro area’s debt crisis and a lack of bold post-crisis reforms.
While the EU’s investment-to-GDP ratio has been comparable to that of the US since the mid-1990s, Europe’s annual real GDP growth averaged only 1.6% from 1996 to 2024, compared with the US’s faster 2.5%. Since 2022, the EU’s investment ratio has declined from 24% to 21%, contributing to a sharp slowdown in GDP growth to 0.7% in the first half of 2024.
The TFP growth differences within the EU’s four largest economies highlights particularly stagnant TFP dynamics in Italy and, to a lesser extent in Spain, from 1995 to 2019, IFF says.