EP03 — The Reasons Why Europe Grows Slower Than the US — Holger Schmieding

I mean, we touched now a couple of factors.

So you mentioned regulation, of course, you mentioned productivity growth, which is connected.

We touched shortly about capital markets.

We will talk about that later in more detail.

What about energy costs as another factor? What would be your take on that?

It is a serious factor, yes, but I think the other factors that we mentioned already are more important.

The gap in energy costs has been there for quite a while.

It already was actually there when we were not underperforming the US by such a wide margin.

Energy costs, of course, for us, in the wake of Putin's brutal attack on Ukraine, have become a much bigger factor.

We see that in roughly 20% of Eurozone chemicals output having migrated abroad.

Chemicals is typically very energy intensive, and some of that has gone to the US.

But again, that is a smaller factor.

It's a factor, but a smaller one.

And another factor some people mention when they compare US and Europe are demographics, because the US has not such a big problem, especially compared to China, for example.

How would you consider that one, if you would rank it with the others? It's probably

a bit above energy costs, but quite a bit below all the things we mentioned about regulations and capital markets union.

Why? Europe is by and large open to immigration.

When the U.S. was open to immigration until Trump returned to office, the U.S. did have an advantage here.

But now that the U.S. has gone to net immigration of zero, possibly even negative, with more people leaving the U.S. than coming into the U.S., the U.S. actually is starting to fall behind Europe on immigration.

Their birth rate is still a bit higher than the European average, but Europe remains somewhat open to qualified, especially, immigration, and that the U.S., now with tariffs, And with your heart clamped down on immigration, that the U.S. is wasting some of its previous advantages over Europe is one reason why I think that the U.S.-European growth gap will narrow.

We have at Bernberg reduced our estimate of U.S. trend growth from 2% before Trump came back to office to 1.5% now, relative to our guess that Eurozone trend growth is around 1.2%.

Still behind even the Trump 2 US, but less behind than it was before.

Interesting.

So that's, I mean, that's super relevant for our topic.

And would you say there will be a structural change then over the coming years? Or is this something very, you know, caused in most recent developments, which can quickly again twist and turn in other directions?