<\/p>\n
Absent reform, region faces serious demographic, productivity challenges.<\/p>\n
European economic growth potential is poised to slow significantly in the years ahead, driven by population aging and lagging productivity, says Moody\u2019s Ratings.<\/p>\n
In a new report, the rating agency warned that trend GDP growth is projected to slow from its current level of 1.8% to just 1.2% by 2033 \u2014 with the trend dropping to less than 1% in the region\u2019s three largest economies, Germany, France and Italy.<\/p>\n
\u201cWe expect a significant decline over the next decade, driven by an aging population,\u201d it said, noting that its forecast factors in projected trends in demographics, immigration, labour force participation and productivity, among other considerations.<\/p>\n
\u201cWithout policy action, the slowdown in trend growth could lower our view of countries\u2019 economic strength, a key credit consideration,\u201d it also warned.<\/p>\n
Indeed, Moody\u2019s said that its economic strength assessments would likely decline by one notch for most European countries, while dropping two notches for Croatia and Cyprus.<\/p>\n
The negative demographic picture could be at least partly offset by policies to boost immigration, improve labour participation and enhance productivity, it noted.<\/p>\n
\u201cIn the short-term, an increase in skilled worker migration is likely to mitigate the effect of adverse demographic trends. Longer term, higher immigration and rising participation rates can help soften the effect of aging populations,\u201d it said.<\/p>\n
\u201cHowever, significant domestic reforms to boost labour market participation would be needed to prevent steady shrinking of the labour force,\u201d it added.<\/p>\n
Additionally, the outlook could be helped by reforms that aim to enhance productivity.<\/p>\n
\u201cThese include reforms expected to yield positive results in the near-to-medium term such as cutting bureaucracy, more effective EU funds targeting and additional infrastructure investment,\u201d it said \u2014 adding that longer term reforms are needed to help shift toward more productive industries, to support research and development and to increase and enhance the efficiency of education spending.<\/p>\n
\u201cHowever, the prospect of and commitment to implementing comprehensive reforms are still unclear at this stage,\u201d it cautioned.<\/p>\n
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