Press Release
Long-Term Forecast: Euro Area Growth to Average Just 0.9% Without Major Structural Reforms
2024-12-13
Brussels, December 13, 2024…A newlong-term economic forecast from The Conference Board projects baseline Euro Area growth of just 0.9% per year over the next fifteen years, lower than the 1.3% growth achieved over the decade before the pandemic. Insufficient investment, labor constraints and geopolitical fragmentation are expected to put pressure on the region’s long-term growth prospects.
The report, Euro Area Outlook 2025 – 2039, finds that the European economy could achieve annual growth levels of at least 2.4% over the relevant period, halving its output growth gap with the United States by 2040. But doing so will requiredecisive efforts by both public and private sectors. This would includefivefold increases in R&D investments, more integrated EU capital markets, and more than five million new skilled and unskilled workers being integrated into the Euro Area workforce every year.
The report finds that a declining population presents the biggest challenge to the EU’s long-term growth outlook. The Euro Area working age population today stands at 291 million, versus 165 million in the US. This is projected to decrease and be smaller than the US by the end of the century. Simulations show that even drastic policy changes, like a five-fold increase in R&D spending, would still not be enough to help the Euro Area close the GDP gap with the US.
“This forecast is a reminder that, without tough decisions in the near future across multiple policy fronts, the Euro Area faces another decade and a half of low growth”, said Maria Demertzis, Economy, Strategy and Finance Leader, The Conference Board Europe. “Our forecast identifies three major risks facing Europe in the medium term: demographic decline, geopolitical fragmentation, and failure to close the annual investment gap. Much more investment in R&D, a stronger focus on economic security, and more creative thinking around debt reduction and allocation are central to tackling these risks.”
The report sets out the current base case, plustwo scenarios for the Euro Area Economy, 2025 – 2039: Pessimistic and Optimistic. The contribution of supply-side drivers of long-term Euro Area growthconsideredin the report are:
TOTAL FACTOR PRODUCTIVITY (TFP)(Contribution to EA long-term growth, on average per year, over 15 years):
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Base Case: Subtracts -0.1% as productivity slowdown continues current trend.
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Pessimistic: Subtracts -0.3%due to widening tech gaps & overregulation.
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Optimistic: Contributes 0.7% as R&D spending increases five-fold and capital deepening doubles from pre-2019 levels.
LABOR QUANTITY (Contribution to EA long-term growth, on average per year, over 15 years):
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Base Case: Subtracts -0.1% as European workforce continues to shrink and age.
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Pessimistic: Subtracts -0.3%as migration laws become less favorable and labor participation rates decline.
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Optimistic:Contributes 0.1% as public policies attract skilled and unskilled workers from abroad, and efforts to integrate older-age workers and women deepen.
LABOUR QUALITY (Contribution to EA long-term growth, on average per year, over 15 years):
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Base Case: Contributes0.2% as high educational attainment remainsunchanged, but skills shortages grow.
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Pessimistic: Contributes0.1% as skills shortages deepen and companies struggle to access skills needed to adopt new technologies.
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Optimistic:Contributes0.3% as high educational attainment is complemented by skills programs that help companies boost productivity.
CAPITAL (Contribution to EA long-term growth, on average per year, over 15 years):
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Base Case: Contributes 0.9%, due to funding coming from EU Resilient Recovery fund, while private investment lags.
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Pessimistic: Contributes 0.7% as intense fiscal consolidation dampens activity and investments.
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Optimistic: Contributes 1.3% as improvements in regulation and productivity gains unlock private investment.
Media Contact?
Harry Miskin: hmiskin@tcb.org?? ?
About The Conference Board?
The Conference Board is the member-driven think tank that delivers Trusted Insights for What’s Ahead™. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org?
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