Regional highlights: Europe
Faced with impending Brexit and geopolitical crises spilling over into the region, Europe finds itself in critical condition in many respects. Nevertheless, the region—which includes the EU28, Iceland, Norway, Switzerland, the Balkans, and Turkey—still performs above the global average in terms of competitiveness (4.72 average score in Europe versus an average score of 4.11 among the rest of the world; see Figure 7). This is driven by the performance of a group of regional champions, notably Switzerland, which leads the global rankings for the eighth consecutive year. The top 12 includes seven more European countries: the Netherlands (4th), Germany (5th), Sweden (6th), the United Kingdom (7th), Finland (10th), Norway (11th), and Denmark (12th).
Although the top European countries are pushing the frontier in almost all areas, there is wide dispersion in regional performance on several pillars. The largest gap is in the macroeconomic environment pillar, a reflection of the fact that the region has been recovering unevenly from the global financial crisis. Europe’s median performance is weakest across the innovation indicators: Figure 8 shows that the region’s countries are clearly divided, with a significant gap between the innovation assessment for Northern and Western European countries versus Central, Eastern, and Southern European ones. Although this gap has been a persistent challenge, there are some recent encouraging signs of convergence in certain dimensions.10
Accelerating innovation efforts will be crucial to maintain current levels of prosperity, and Europe can expect high returns from focusing its resources on nurturing its talent. Figure 9 zooms in on seven important human capital indicators. Among the basic education indicators, the regional gaps are most apparent for math and science education. On attracting and retaining international talent, although one European country (Switzerland) achieves the top global scores, the average for the region as a whole is low; this does not bode well for the creation of a vibrant European knowledge economy. The United Kingdom is currently still the most attractive EU destination for talent, yet the Brexit vote has created significant uncertainty over the conditions under which workers from EU countries will be able to participate in the UK economy in the future. Moreover, university applications from the European Union could potentially drop amid uncertainty over prospective students’ status and subsequent access to the UK job market (see Box 5 on the potential implications of Brexit; note that data presented in the Report were collected before the Brexit vote). Other European destinations also seem to be losing appeal. Indeed, some of the largest score drops for France compared to last year were registered for the “attract and retain talent” indicators.
With unemployment—and youth unemployment, in particular—still high across the region, Europe is leaving large numbers of its citizens behind. Yet good practice examples in this area exist on the continent, with countries such as Switzerland and Denmark striking a balance between high labor market flexibility and strong social safety nets. Table 3 in Appendix B gives an idea of the extent of catching up on labor market efficiency that many European countries will have to do over the coming years; note that the level of inclusion achieved by reforms will depend heavily on the details of implementation.
A more detailed assessment of the European competitiveness landscape is currently being undertaken in the context of the Europe Inclusive Growth and Competitiveness Lab, a joint initiative between the Forum, the European Investment Bank, and Bruegel (see Box 7).