Insight 1998
-
20
23
Why Europe should not worry about US out-performance by Aslak Berg, 13 December 2023 The US has had stronger growth than Europe recently – but its out-performance is easily explainable. Instead of worrying about the US, Europe should focus on itself and avoid repeating past mistakes. The consensus on Europe’s economy is increasingly morose, with the continent lagging the US growth rate. However, media coverage often suffers from a lack of rigorous thinking about how to compare the two economies. Europe’s economic performance is under-appreciated as a result. Whilst the US has grown considerably faster than the EU since 2010, US out-performance has been fuelled by three factors: The US has faster population growth and more favourable demographics. The US has become a net exporter of energy while Europe cannot meet all its energy demand with its scarce domestic energy sources, and consequently pays high prices for imports. The US has had both greater fiscal space to stimulate its economy and far greater willingness to use it. Of these three advantages, the first is a structural trend which would take time for Europe to reverse, including by facilitating immigration, a politically sensitive issue. The second is a physical constraint which Europe is addressing by investing in alternatives to fossil fuels, though this too will take time. The third is political and could be remedied, if not fully resolved, if EU countries were willing to do so. Yet despite these constraints, the European economy has overall performed admirably. Productivity growth has been solid on average, although it has varied widely across the EU. How to compare economic performance Using GDP as a measure for economic growth for a single country is straightforward. But it can be misleading to use it to compare economies for two reasons: shifts in exchange rates and differences in inflation between countries. A simple comparison using market exchange rates would indicate that the US economy is now 50 per cent larger than the EU economy, up from near parity in 2010. Yet most of that CER INSIGHT: WHY EUROPE SHOULD NOT WORRY ABOUT US OUT-PERFORMANCE 13 December 2023
INFO@CER.EU | WWW.CER.EU
1