Eurozone Potential Growth Could Fall Below 1% over the Next Few Years

Why It Matters

Sub‑1% potential growth jeopardizes fiscal sustainability and erodes the EU’s global competitiveness, pressuring governments to accelerate productivity‑focused reforms.

Key Takeaways

• Eurozone potential growth may dip to 0.8% by 2028
• Productivity adds only 0.2pp to 2024‑25 growth, versus US 2pp
• Population’s GDP contribution projected to shrink by 0.35pp
• Only 14% of Draghi report reforms implemented so far
• Immigration opposition curtails labor‑force expansion

Pulse Analysis

The eurozone’s growth outlook has shifted from a modest recovery to a looming structural slowdown. The European Commission’s Autumn 2025 forecast trims potential growth to 1.2% by 2027, and independent analysis suggests it could slip below 1% as early as 2028. Potential growth measures the economy’s sustainable cruising speed, stripping out cyclical fluctuations. This decline is not merely a cyclical dip; it reflects deeper issues in the region’s productivity engine and demographic trends.

Productivity is the missing growth lever. In 2024‑25, the eurozone’s GDP rose 1.1% while the United States grew 2.1%, largely because U.S. productivity contributed two full percentage points. In contrast, European productivity added only 0.2pp, with most of the growth coming from a modest rise in labor supply. Country‑level data reveal mixed signals: Spain’s recent gains stem from immigration‑driven labor growth, France’s modest productivity rise reflects a composition effect, and Germany and Italy even posted negative productivity. With aging populations and limited immigration appetite, the demographic boost to growth is set to shrink by 0.35pp, further pressuring the productivity gap.

Policy inertia compounds the challenge. The Draghi Report, released in 2022, outlined structural reforms to revive productivity, yet only 14% of its recommendations have been enacted. While the “One Europe, One Market Roadmap” promises targeted actions by 2027, historical precedents like the Lisbon Agenda show that ambitious plans often stall amid short‑term crises. Without decisive measures—such as raising retirement ages, incentivizing R&D, and liberalizing labor markets—potential growth will likely remain below 1%, tightening public finances and diminishing the EU’s competitive standing on the world stage.