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Facing the United States, the risk of Europe's downgrade worries economists

Facing the United States, the risk of Europe's downgrade worries economists

The gap between Europe and America continues to widen. In the early 2000s, GDP per capita in the Eurozone was 33,500 euros, compared to 43,700 euros in the United States. Twenty years later, per capita income on the Old Continent barely reached 39,600 euros, compared to 54,800 euros on the other side of the Atlantic. How to explain such abandonment? Weak economic growth in the Eurozone can certainly explain part of the divergence with the world's leading economic power.

But this indicator does not take into account the devastating long-term effects of various shocks to the economy over the past two decades. Economists call these “hysteresis effects.” The financial crisis of 2008, the sovereign debt crisis of 2012, the pandemic and the energy shock have left deep marks on the manufacturing sector in the Eurozone. In the US, these various crises have scarred the economy as well. But budgetary and monetary policies across the Atlantic allowed the various engines of the economy to quickly restart.

In Europe, a worrying decline in productivity gains

In addition to these factors, lower productivity gains in the Eurozone are likely to contribute to the widening of the gap with the US. A hint Detailed information about OFCE was released on May 16. On the other side of the Atlantic, productivity growth increased by 1.5% per year between 2000 and 2019, compared to just 0.8% in the euro zone.

“To bridge this gap, it is necessary for Eurozone countries to stimulate their hourly productivity by adopting ambitious policies of innovation, competition, flexibility and professional training. These policies are crucial to succeed in the technological (automation, digitalisation, AI) and environmental transformation of our economies”explains to gallery, Sebastien Bock, Economist at OFCE.

Productivity in France is in free fall, economists warn

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Europe: Apparent lack of investment

In Europe, the decline in productivity can be explained by a lack of investment in research and development, software and information and communication technologies (ICT). In ICT, for example, the US economy invests more than twice the percentage of value added in computing and communications equipment than the Eurozone.

In their note, the economists calculated that investment per job in ICT is between 500 and 700 euros per year in the euro zone, compared to 2,500 euros in the United States. On the issue of ICT, economists are particularly concerned.has At a time when all observers and experts see future economic growth based on the increased use of digital technologies, particularly through the development of artificial intelligence and quantum computers, we must ask ourselves whether European backwardness has not reached more crippling levels. Future Development”, Researchers explain.

It must be said that the tech behemoths in the US are investing huge amounts of money when it comes to research and development. By 2022, Alphabet has invested ($25 billion) in all private companies in France. In the old continent, theEconomists point out that investments in R&D and digital equipment are limited due to the lack of leading companies in the digital services sector.

A €630 billion shortfall in private investment in the Eurozone

Closing the gap with the US is the biggest challenge for euro zone states. According to the calculations of economists, Europe needs to invest an envelope 630 billion euros (i.e. 5% of GDP) should be captured by ICT, research and development and software every year.

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For France, the private sector needs to invest an additional 61 billion euros. For Germany, companies must pay 57 billion euros per year. is facing the risk of “Technical Downgrade”, Economists warn that the euro zone must step up its efforts.

In France, debates about the effectiveness of budgetary levers are seen as promoting innovation. “There is a need to increase the effectiveness of spending by better targeting innovation incentive programs.” Recommends Sébastien Bock.

“For example, France has implemented one of the most generous innovation support programs in the OECD, the Research Tax Credit (CIR). However, its effectiveness is limited because its access criteria do not take into account the size of companies, thus favoring large companies that would have invested even without this system.

It remains to be seen whether the French government will dare to attack this totem during the next budget debates in the autumn.

In the euro zone, growth will be three times slower than in the US in 2024

In its latest forecasts published this week, Brussels expects GDP growth in the euro zone to grow by 0.8% this year on 1.4% next year. there brokerage It expects growth of 1% in 2024, then 1.6% in 2025 for the EU as a whole, generally in line with its previous expectations. But Germany continues to drag Europe down. Its growth will be almost zero this year (+0.1%), compared to 0.3% in Brussels February.

Next year's GDP growth is expected to be 1%, but again lower than the 1.2% figure predicted so far. France is doing well but its growth will be a better-than-expected 0.7% in 2024, instead of the 0.9% reported in February, and 1.3% (unchanged figure) in 2025. In the US, GDP growth should accelerate. Up to 2.4%, three times faster than in the euro zone, according to the European Commission.

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