A Research Note, published today (Friday, 20th March) by the ESRI, examines the growth prospects for the euro area over a short, medium and longer-term horizon. The research note, which is based on joint ESRI-UCD work entitled “Europe’s Long-term Growth Prospects: With and Without Structural Reforms’’, updates earlier calculations by the same authors in a 2008 paper and provides projections of eurozone growth out to 2060, based on recovery scenarios related to the 2008 economic crisis and long-term demographic trends.

The research on which the Note is based also examines the implications of three significant structural reforms on European growth rates. Overall, the findings are sobering for those expecting economic growth to deal with the Euro Area’s debt problems over the next decade. Among the results reported are the following:

1.  The working age (15 to 64) population of the Euro Area has been declining since 2010.

2.  An average real GDP growth of just over half of one per cent per annum over the next decade is projected even if unemployment and investment return to their pre-crisis rates by 2020.

3.  The adoption of significant and ambitious labour market as well as product reforms across the Euro Area would improve GDP growth by just 1 per cent per annum.

4.  The research concludes by calling for a significant joint Euro Area funded capital investment programme which would address the large output gap and increase the supply-side potential of the European economy.

Commenting on the Note, Kieran McQuinn, one of the authors, said:

“Over the longer-term, Europe needs a plan for dealing with a pattern of population ageing that is set to have enormous effects on its growth potential. Policy initiatives to delay retirement ages and to encourage labour force participation are undoubtedly part of the solution to the problems posed by ageing. However, these initiatives are likely to be very unpopular politically and may have negative implications for productivity. A policy of large planned increases in the amount of immigration into the EU, while also politically challenging, may turn out to be the only way to keep the European economy expanding in the future.”

For further Information please contact:

Kieran McQuinn, Associate Research Professor, The Economic and Social Research Institute  Email: kieran.mcquinn@esri.ie

Karl Whelan, Professor of Economics, University College Dublin 
Email: karl.whelan@ucd.ie

Notes for Editors

1.  This article will be published as a Research Note* in the Quarterly Economic Commentary, Spring 2015 to be published 25 March 2015.

*Research Notes are short papers on focused research issues. They are subject to refereeing prior to publication.