Europe’s Productivity Gap and the Path to a More Competitive Future

Europe is at a crossroads as it confronts significant economic and demographic headwinds, prompting a renewed focus on productivity and living standards across the continent.

Over the past thirty years, Europe has struggled to keep pace with the United States in terms of productivity growth, with a notable gap opening since the mid-1990s. While US productivity expanded by nearly 61% from 1995 to 2024, Europe saw a rise of just over 39%, resulting in a widening gap exacerbated in the last five years by the pandemic and geopolitical shocks. Interestingly, however, Europe's standard of living—measured by real GDP per capita—increased at a nearly comparable rate to the US, a testament to the continent’s success in drawing more people into the workforce and cushioning the blow from slower productivity gains.

Despite this resilience, structural barriers continue to hold back Europe’s productivity potential. The patchwork of national regulations hampers business growth, while access to market-based equity financing, especially for innovative startups, remains limited compared to the US. To address these issues, recent policy proposals focus on simplifying and harmonizing Europe’s regulatory environment, such as through the “28th Regime” for optional EU-wide business frameworks, and fast-tracking the development of deeper, more integrated capital markets to support entrepreneurial growth.

In sum, while Europe’s living standards have held up better than productivity numbers alone might suggest, closing the productivity gap with the US is critical to maintaining economic resilience and ensuring prosperity for future generations.