Europe | Low-cost convergence with the United States?

Summary

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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