Some thoughts on Economic Growth in Europe, or the Lack of It

Dear Friends of IVA,

The global economy is entering a period of weaker growth than we are used to. This is shown in the International Monetary Fund’s (IMF’s) latest World Economic Outlook, published earlier this summer. We’ve known this for a while, but the report provides clear, concrete evidence that the eurozone’s growth figures are the lowest in the world. What might be causing this – and what it will take to move us away from the bottom of the pack?

First, a few figures. Global growth for 2026 is projected to be 3.0 percent, and for next year, slightly higher at 3.4 percent. Broken down by region for 2027, Asia is projected to grow at 4.8 percent, the US at 2.2 percent, and the eurozone modestly, at 1.2 percent. The figures for Sweden in 2027 vary somewhat depending on the source, but range somewhere between 2.2 percent (European Commission) and 2.5 percent (OECD). This is significantly better than the euro area and in line with projections for the US.

The IMF emphasizes that this is not a global recession but rather a new economic reality, where growth is more limited, more unevenly distributed, and harder to achieve. In this new reality, innovation, technological development, productivity, skilled labor, and the ability to translate research into new companies and new markets are gaining importance.

The IMF’s Deputy Director of Research, Petya Koeva Brooks, argues that the global economy is currently being influenced by two powerful forces pulling in opposite directions. While the energy shock due to the war in the Middle East is acting as a drag, rapid technological development is driving investment and growth, particularly in the field of AI.

Thus, technological development and AI investments are increasingly determining which economies are growing and which are falling behind. This makes the report’s perhaps most notable observation particularly important for Europe: while parts of the global economy continue to benefit from new technologies, investment, and rising productivity, the euro area is stuck at a significantly lower growth rate. The problem for Europe is therefore not primarily cyclical but structural.

We must understand Europe’s ongoing debate on competitiveness against this backdrop, and it is for this reason that European Commission President Ursula von der Leyen has focused almost obsessively on competitiveness and the single market. A stronger single market, better access to capital, faster technological development, and increased innovation are absolutely crucial to getting Europe back on track. Von der Leyen’s leadership in this effort has been exemplary. As a result, there is a clear understanding in Brussels of the crisis, with the necessary proposals for policy reform in place. But are the member states ready? Are they bold enough?

Next year is an unusually important election year in the EU. Several major member states are holding elections, including France, Poland, Spain, and Italy. The political representatives of these voters will have a major impact on Europe’s future.

The EU’s long-term budget is set to be finalized, and the security situation is deeply troubling, with war on our doorstep and uncertain support from across the Atlantic. Add to that the breakneck pace of technological development, which is creating a new reality we must navigate.

Elections in Sweden take place already this year – in just 33 days. The issues most important to voters are, in order of priority, healthcare, law and order, schools and education, and national defense. These are wise priorities but require (significant) fiscal leeway. And that’s where growth comes in. To be able to finance necessary reforms – in Sweden and in the EU – we need growth that is significantly stronger than the modest 1.2 percent forecast for the EU and the 2.2 percent for Sweden. 

To quote James Carville, the political strategist who helped Bill Clinton win the presidency in 1992: “It’s the economy, stupid!”

Thank you for being part of the IVA network.