The euro area misses out on investing in intellectual property

We analyze persistent growth differences between the US and the euro area. We focus on nonreciprocal explanations for: (1) the underlying factors behind productivity growth in the non-euro area USA; (2) The slow impact of equally tight monetary policy on both sides of the Atlantic on the US real economy.

It is difficult to distinguish between “structural” and “cycle” productivity in real time. Nevertheless, we tend to explain the continued strong US economy with a substantial increase in investment in intellectual property (especially software and R&D) since the mid-2010s. There are numerous academic papers on how organizations benefit when using IT technologies such as cloud computing. While much of the tech debate currently revolves around AI's promising prospects, the proliferation of older technologies — perhaps fueled by the COVID crisis — has fueled a “stealth revolution.” Interestingly, the euro area completely missed out on investments in intellectual property. While the EU is busy consolidating things like the US IRA and the CHIPS Act, faster delivery of the next generation of EU funds – especially those earmarked for digitization – could be priority funding – more effective in boosting productivity. .

US data from different sources can be mixed, but national accounts suggest that monetary policy has had little impact on US firms so far and that the impact of tightening has been slower than in the last rate-cutting cycle 20 years ago. Things are different in euro area countries where comparable current figures are available, for example in France. So Europe could get a double whammy: a positive supply shock and a swifter impact from the ECB's monetary policy.

By Gilles Moëc, Chief Economist at AXA Group and Head of AXA IM Core Investment Research at AXA Investment Managers

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