Ireland and France are best placed to maintain fast growth after the current euro-area economic upswing runs it course, according to UBS economists.
The researchers looked at the region’s demographics, productivity and investments and came up with a ranking that captures long-term growth prospects for 10 of the region’s larger economies. They assume Europe will have to boost investment to compensate for its shrinking working population.
“While Germany is close to France in terms of investment, poorer demographics are likely to weigh on long-term growth,” UBS economists including Anna Titareva and Reinhard Cluse said in a report. “The outlook for Italy and Spain appears more challenging.”
Ireland led the euro area in four out of six metrics analyzed by UBS, relating mainly to added productivity from a growing population. That gives it the best prospects in terms of potential growth.
Although the euro-zone working population is projected to shrink by almost 6 percent by 2030, it will stay broadly unchanged in France. In Germany, Europe’s biggest economy, the decline could reach 9 percent and will likely weigh on long-term growth, according to UBS.
France leads the pack in terms of “intangible” investments such as staff training, research, development and software. These work faster to boost growth potential, although “to achieve broader productivity gains, an increase in both types of investment tangible and intangible will likely be needed,” the economists said.
Things are not looking good for Italy and Spain. Both countries are suffering from a declining work force and their share of intangible investments is low. Migration won’t help much either. The number of immigrants would have to grow by almost eight times the current volume in the euro zone to offset the expected decline in the working age population, according to UBS.