## Regional Economic Outlook for Europe, October 2024: A Recovery Short of Europe’s Full Potential

_Regional Economic Outlook, October 2024_

## Source details

**Canonical URL:** [Regional Economic Outlook for Europe, October 2024: A Recovery Short of Europe’s Full Potential](https://www.imf.org/en/publications/reo/eu/issues/2024/10/24/regional-economic-outlook-europe-october-2024)

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## Bibliographic details
- Published: October 24, 2024

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### Overview and key findings
- Europe’s economy is recovering, benefiting from a strong crises’ response, but the recovery is falling short of its full potential.
- Uncertainty about persistent core inflation, policy directions, and geopolitical conflicts is dampening the near-term outlook.
- In the longer term, weak productivity growth—attributed to limited scale and business dynamism—together with new headwinds from fragmentation and climate change, are holding back growth potential.
- Steady macro policies are needed to navigate an uncertain environment:
  - Transition to a neutral monetary policy stance.
  - Reduce fiscal deficits without jeopardizing the recovery.
- A larger and more integrated single market for goods, services, and capital will incentivize investment, innovation, and generate scale benefits.
- Deepening European integration will strengthen economic resilience by insulating businesses and labor markets from global fragmentation pressures.

### Note One — Europe’s Declining Productivity Growth: Diagnoses and Remedies
- Europe’s widening productivity gap with the U.S. has deep firm-level roots:
  - Compared to the U.S., Europe’s leading firms innovate and grow less.
  - Young high-growth firms have a smaller footprint in the economy and tend to remain small.
- Identified bottlenecks:
  - Smaller markets.
  - Limited equity financing, which hinder leading firms from innovating and scaling up, particularly in tech sectors.
- Policy and structural remedies highlighted:
  - Increase human capital investment.
  - Greater availability of risk capital.
  - Improve the design and coordination of public support to R&D and education systems.
  - Remove intra-Europe barriers to factor and product markets integration to improve business dynamism and revive productivity growth.
  - Domestic reforms to lower barriers to firm entry, facilitate exit, and remove tax and regulatory disincentives to grow.

### Note Two — Accelerating Europe’s Income Convergence through Further Integration
- Economic convergence is required to raise Europe’s growth, meaning activity should expand fastest where opportunities are largest.
- Historical evidence from the early 2000s:
  - EU accession acted as a catalyst for convergence through effective integration and structural reforms, improving connectedness for old and new member states.
  - Due to EU accession, average regional GDP per capita in new member states increased by more than 30 percent, with larger gains for poorer regions.
  - Productivity catch-up was driven by innovation and higher educational attainment, along with substantial capital investment, primarily through FDI.
- Recent developments and prospects:
  - Productivity growth has slowed more recently.
  - Based on new estimates, Europe’s income gap to the US could be reduced by around 10 percentage points through a new enlargement round.
  - If enlargement is paired with deeper integration to reduce remaining barriers within the EU, the benefits could be magnified.

### Policy implications and priorities
- Maintain steady macroeconomic policies to support recovery while addressing vulnerabilities:
  - Transition monetary policy to a neutral stance.
  - Reduce fiscal deficits in a manner that does not jeopardize the recovery.
- Structural and regional policies to boost potential growth:
  - Remove intra-Europe barriers to factor and product market integration.
  - Expand the scale of markets to foster firm growth and innovation.
  - Enhance access to risk capital and reform public support for R&D and education.
  - Pursue domestic reforms to lower barriers to firm entry, facilitate exit, and eliminate tax and regulatory disincentives to grow.
- Deepen European integration and consider enlargement to accelerate income convergence and strengthen resilience to fragmentation.

*Regional Economic Outlook — Europe, October 2024*

---

## Content in this bundle

- **Reoeurnote1**
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---

## References

- [Note One Blog](https://www.imf.org/en/Blogs/Articles/2024/09/11/how-to-awaken-europes-private-sector-and-boost-economic-growth)
- [Note Two Blog](https://www.imf.org/en/Blogs/Articles/2024/12/03/the-2004-eu-enlargement-was-a-success-story-built-on-deep-reform-efforts)
- [Transcript](https://www.imf.org/en/News/Articles/2024/10/24/tr102424-transcript-of-eur-reo)
- [Press Conference](https://www.imf.org/en/Videos/view?vid=6363744360112)
- [Remarks at the House of the Euro](https://www.imf.org/en/news/articles/2024/11/18/sp111424-scaling-up-the-single-market-to-boost-productivity)
- [Blog](https://origin-blogs.imf.org/en/blogs/articles/2024/12/03/the-2004-eu-enlargement-was-a-success-story-built-on-deep-reform-efforts)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/publications/reo/eu/issues/2024/10/24/regional-economic-outlook-europe-october-2024_