Europe’s Long-Term Growth Prospects

Abstract

Even before the financial crisis of 2007/8, there were questions about Europe’s long-term growth prospects. Since the mid-1990s, Euro area productivity growth had been falling behind that of the United States. Using data for the period 1970–2006, authors identified declining European rates of total factor productivity growth and weaker capital accumulation as areas for concern. Updating this earlier analysis, authors find that growth prospects for the euro area have deteriorated further; that Europe’s demographics are also contributing to a decline in the workforce. Thus a long-term projection for euro area GDP based on unchanged policies is provided and there is discussion about the possible impacts of certain structural reforms including unemployment rates, pensions, and the successful implementation of a significantly wider programme of regulatory reform aimed at boosting growth. Even with the successful adoption of these measures, the European economy is still likely to continue to grow at a slower pace.