IMF: EU continues to lag behind the US

According to a new report by the International Monetary Fund (IMF), the gap in economic productivity between Europe and the United States continues to widen, with the US having had a head start since the 1990s.

The report shows that the EU’s GDP per capita, measured in purchasing power parity, now stands at about 72% of the level in the United States. According to Alfred Kammer, head of the IMF’s European division, this gap is 70% due to slower productivity growth in Europe.

Mr. Kammer points to three main obstacles that he believes are holding back productivity in the EU.

First, the EU market is fragmented with trade barriers between member states, causing companies to focus on national markets instead of the whole EU. A unified market without these barriers could raise Europe’s productivity by seven percentage points, according to the IMF.

Housing shortages have an impact

Another issue is the lack of a unified capital market. Unlike in the United States, where companies can more easily secure financing through equity issuance, EU companies typically rely on bank loans. Tech companies are particularly affected, as they often lack traditional assets and seek venture capital, which is underdeveloped and focused on national markets within Europe.”

The third barrier relates to labor mobility within the EU, where high costs and housing shortages make it harder for workers to move between countries than it is for US workers to move between states.

The IMF report emphasizes that the solutions to these problems lie in the hands of EU leaders, who have recently asked the European Commission to come up with proposals by mid-2025 on how to improve the single market in various ways.