Europe | Low-cost convergence with the United States?

The debate over Europe lagging behind the US economy reveals that improvements in per capita income, based on current purchasing power parities, coexist with a lower capacity to purchase goods and services in the United States, which is inconsistent with full convergence.

Key points

• Key points:
• Spain advanced from slightly over 55% in 1990 to nearly two-thirds of the United States level in current purchasing power parities.
• When using constant 2021 parities, the Spanish economy would have ceded around ten percentage points over three decades, settling at nearly 64% compared to the United States.
• Since 1995, the European Union and Spain have improved their relative per capita GDP in current terms because their domestic prices have fallen by more than 20% relative to those in the United States, whereas in China, relative prices have increased by 21%.
• The European dynamic is not fully consistent with the Balassa-Samuelson effect, as the convergence in current income has not been accompanied by an increase in relative price levels compared to the United States economy.

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