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Growth: why Europe is slipping compared to the United States

Mgloomy summer for the European economy. In the third quarter, activity in the euro zone fell (-0.1%), weighed down by the drop in gross domestic product (GDP) in Germany (-0.1%) and its virtual stagnation in France (+ 0.1%). Worse still, the outlook for the end of the year is far from being that of a recovery: activity should at best stall… and at worst, decelerate. In total, over the year 2023, the member states of the monetary union are expected to post sluggish growth (+ 0.7%). But the situation is even more disappointing when we look across the Atlantic. The United States is expected to post a healthy GDP increase of 2.1% this year…

If you take a look in the rearview mirror, the difference is even more obvious. “The United States today has a GDP in volume which is 7.4% higher than it was just before Covid, while, in the euro zone, it only increased by 3.4%. %, with a very strong contribution from Ireland, which alone represents a third of this growth,” notes Charles-Henri Colombier, economic director at Rexecode. A disconnect that already existed before: since 2007, per capita growth in the United States has reached 19.2%, while it has only been 7.6% in the euro zone!

Weakness of the tech sector

Weighed down by less dynamic demographics and sluggish productivity gains, the euro zone suffers from potential growth much lower than that of the United States (1.3%, compared to 1.8%). “The productivity of the euro zone is notably undermined by its less significant effort in research and development, by investing in new technologies, but also by the weakness of its tech sector,” analyzes Patrick Artus, economic advisor to Natixis. “The United States has succeeded in stimulating immigration growth and ensuring that it generates more added value,” underlines Ana Boata, director of economic research at Allianz Trade.

But the difference in magnitude in the response to economic shocks also played a role in the relegation of the euro zone. The United States, benefiting from the privilege of the dollar, was able to widen its deficits with large checks for households, massive investment plans, such as the Inflation Reduction Act (IRA), or the Chips Act, and reductions of taxes. This year again, the deficit increased by 23%, and exceeds 6% of GDP. The euro zone is more constrained in its room for maneuver: the total deficit of the monetary union will amount this year to 3.4% of GDP. Member States have in fact had to turn the “whatever it takes” tap much more quickly, because they do not benefit from the same laxity of the markets and will soon have to submit again to budgetary rules, suspended since the crisis. of Covid.

Cicadas and ants

Another difference: the United States, energy autonomous, was not hit in the same way by the energy crisis, unlike the euro zone, fueled by Russian gas and which took this shock head on. Households also had a different response to the surge in inflation and rising rates: Americans dipped into their Covid savings, while in the euro zone, and in particular the Germans and the French, they been more ants than cicadas. “American consumers are less averse to risk: they have used credit leverage to a significantly greater extent than Europeans have done,” underlines Christophe Barraud, chief economist of Market Securities. The reason: undoubtedly a lack of confidence in the future…

Finally, the euro zone was much more penalized by restrictive monetary policy. “In the United States, it was faster, but it penetrated the economy less well than in the euro zone, in particular because European companies are less profitable, more in debt and less rich in cash than across the Atlantic,” describes Ana Boata. The only consolation for our euro zone: we should experience a slightly more vigorous increase in GDP next year (1.2%). While American growth is expected to slow down to 1.5%.

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