Europe’s Economic Outlook Calls for Reform or Decline

Europe faces a challenging economic future unless its leaders take decisive action to implement reforms and foster conditions that encourage substantial private investment, according to a recent report by The Conference Board. The think-tank predicts that the 20-nation eurozone will experience average annual growth of just 0.9% through 2039, lagging behind the projected 1.6% in the US and the 1.3% growth seen in Europe during the decade preceding the pandemic.

While annual growth rates of up to 2.4% are theoretically possible, achieving such an expansion would require significant, coordinated efforts by both public and private sectors. The Conference Board identified key measures, including a fivefold increase in research and development (R&D) spending, the creation of more integrated capital markets, and the addition of over five million workers annually.

The report outlined monumental challenges for the region. The war in Ukraine has disrupted business models reliant on cheap Russian energy, and intensifying competition from China threatens the future of Germany’s car industry. Additionally, regulatory obstacles are hindering progress in green investments and digital transformation. Compounding these issues are concerns over a potential US-China trade war and political gridlock in Europe’s largest economies, Germany and France, which undermine reform efforts and heighten job security fears.

Maria Demertzis, Chief Economist for Europe at The Conference Board, emphasized the urgency of addressing these challenges. She cautioned that while geopolitical tensions and war dominate discussions, the most certain and pressing issue Europe faces is its aging population. Without intervention, Europe’s working-age population of 291 million—currently far larger than the 165 million in the US—is projected to shrink by more than a third by the century’s end. In contrast, the US workforce is expected to grow by nearly a fifth.

The report warned that failing to address labor shortages would exacerbate Europe’s already bleak economic prospects. Combined with insufficient investment in green and digital transformations, low R&D spending, and persistent regulatory barriers, annual growth could stagnate at an average of just 0.2%.

Similar alarms have been raised by prominent figures like former European Central Bank (ECB) President Mario Draghi, who in September urged the EU to boost competitiveness through measures such as committing to €800 billion ($840 billion) in additional annual investments and issuing common bonds. His proposals, however, were met with resistance in some of Europe’s largest economies.

Meanwhile, the ECB, under President Christine Lagarde, released its own economic projections through 2027. These forecasts indicate that eurozone growth will not exceed 1.4% in any of the covered years and do not account for potential negative impacts from US trade tariffs.

Without bold reforms and significant investment, Europe risks falling further behind its global peers, compounding economic stagnation and social challenges in the years ahead.