The IMF calls for reforms in Europe to increase productivity

"Europe is settling into a slow and mediocre medium-term growth trajectory. However, this is not inevitable," said Alfred Kammer, the director of the European region of the International Monetary Fund (IMF).

"Europe has the talent, technology and savings needed for faster growth," he added at an event at the Bank of France.

But "these resources are simply not being used to their full potential. Europe lacks decisive political action," he said.

The IMF forecasts growth of 1,2% in 2025 and 1,1% in 2026 in the euro area, compared to 2,0% and 2,1% in the United States.

"Total elimination of internal structural policy gaps (...) and reduction of intra-EU cross-border barriers to trade and labour mobility to a level comparable to that observed in the United States would increase EU productivity by 20,2%", according to the report dedicated to this issue.

About half of this productivity gain would come from efforts undertaken at the national level, and the other half from a deepening of the European single market.

"Taking into account the knock-on effects linked to an increase in investment, such reforms would almost close the gap in per capita income with the United States," according to the same source.

An intermediate scenario that would only close half of the structural gaps would still generate "substantial productivity gains" of 8,7%.

The report attributes the productivity gap within the EU primarily to the inefficiency of business hubs, which account for approximately 60% of European gross domestic product (GDP).

Business hubs are regions or areas where a large number of companies are concentrated, such as Silicon Valley in the United States or Europe, the high-tech area of ​​Bavaria, and the Ile-de-France region.

"Effective reforms can increase the productivity of all business hubs, allow existing and new hubs to grow, and enable all regions, including the least populated, to benefit," he emphasizes.

The report also points to the need to deepen understanding of capital markets.

Illustrative image of the article via Depositphotos.com.