IMF shows innovation and productivity gap between EU and US companies

European companies lag behind their American counterparts in both growth and innovation, according to a report released by the International Monetary Fund (IMF) on Wednesday. The report underscores a widening productivity gap, particularly in the technology sector, where U.S. firms have seen significantly higher gains.

The IMF noted that since 2005, U.S.-listed companies have more than tripled their market valuations, while European companies have grown by only 60% in the same period. A stark contrast in productivity also emerged, with U.S. technology companies posting nearly a 40% increase since 2005, while productivity among European firms has remained largely stagnant.

“This significant difference is underpinned by much greater innovation efforts among enterprises in the United States, where research and development spending as a share of sales is more than double that of Europe,” the report said.

In addition to the technology sector, the IMF pointed to broader issues in Europe’s business environment, including a shortage of dynamic startups and a lack of fast-growing firms that can scale up to become large corporations. According to the report, the fastest-growing startups in the U.S. employ six times more people than their European counterparts, reflecting a gap in overall business dynamism.

The IMF suggested that removing remaining trade barriers within the EU and advancing the bloc’s capital markets union could help alleviate some of these constraints. “A thriving business sector is key to reducing Europe’s large productivity and income per capita gap,” the report added.

Currently, income per person in the EU is, on average, one-third less than in the U.S., driven primarily by lower productivity levels, according to the IMF.