Europe needs €1.2tn a year to close productivity gap with US, McKinsey warns
A new McKinsey report for the Aix-en-Provence forum says Europe must direct investment to its most dynamic companies and fast-growing sectors to reverse a widening competitiveness deficit.
Europe faces an annual investment bill of €1.2 trillion over the next five years if it wants to close a widening productivity gap with the United States, according to a McKinsey report published for the Rencontres Économiques d'Aix-en-Provence forum. The consulting firm estimates that US companies have ploughed $2 trillion more into digital technologies than their European rivals over the past five years, leaving the continent's largest firms with revenue growth 1.8 times slower and market capitalisation 3.1 times smaller between 2015 and 2024.
The productivity shortfall reached 33 per cent in 2023. While the US averaged 2.1 per cent annual productivity growth from 2018 to 2025, Germany managed 0.7 per cent, the UK 0.6 per cent and France just 0.2 per cent. Two years after former European Central Bank president Mario Draghi and Jacques Delors Institute head Enrico Letta called for an €800 billion reform plan, McKinsey argues the priority is not merely the volume of capital but directing it to the companies most likely to lift overall productivity.
France has shown a rebound over the past two years, with 90 per cent of its productivity gains linked to business expansion rather than cost-cutting, compared with a 60 per cent average elsewhere. Those gains are concentrated in 53 top-performing companies across luxury goods, telecommunications and insurance. Daniele Chiarella, managing director of McKinsey France, said these champions are "superior even to German and British companies, and in some respects closer to leading American companies" thanks to greater internationalisation.
Yet France has produced no "disruptors", young, innovative firms that break through to large-cap status. No French SME has joined the ranks of the largest listed companies in 25 years. By contrast, 17 per cent of today's largest US firms were SMEs in 2000, against 10 per cent in Germany and 5 per cent in Italy. Tunde Olanrewaju, McKinsey's managing partner for Europe, stressed that the goal is "expanding business, opening new markets, creating new products, raising prices and thereby achieving net growth" rather than simple cost reduction.
McKinsey identifies 18 high-growth sectors, from artificial intelligence and cloud computing to next-generation nuclear, robotics and biotech, that already generate $4 trillion in revenue and are expanding ten times faster than the rest of the economy. Europe holds just 8 per cent of the global market share in these areas. The report cites Schneider Electric's move into software and Michelin's fleet-management services as examples of traditional firms reinventing themselves.
Two structural shifts are recommended. First, reducing fragmentation in industries such as space and defence, where a preliminary agreement among Airbus, Leonardo and Thales signals early consolidation. Second, accelerating generative AI adoption, which combined with other automation could add up to 3.4 percentage points to annual global productivity growth by 2040. The City of London has already been warned it risks falling behind on AI adoption, underscoring the urgency for financial and professional services firms across the continent.
Without a step-change in both capital allocation and company dynamism, the competitiveness gap that Draghi and Letta highlighted risks becoming structural. The next five years will determine whether Europe can turn its industrial strengths into a new growth model or settle into a permanently lower trajectory.