The observation by JPMorgan Chase’s CEO, Jamie Dimon, that Europe is “losing” in competitiveness is less a revelation and more a high-profile acknowledgement of a structural economic divergence that has been widening for over a decade. While a cursory glance suggests European equities are cheap relative to their US counterparts, a deeper analysis reveals this valuation gap may be a rational pricing of profound, persistent disadvantages in energy, regulation, and capital market depth. For investors, this signals a need to look beyond headline multiples and question whether the continent’s economic engine is merely sputtering or in a state of managed decline.
Key Takeaways
- Europe’s GDP has shrunk from parity with the US two decades ago to approximately two-thirds today, a decline accelerated by structural, not just cyclical, factors.
- Persistently higher energy costs and a complex regulatory environment, particularly for technology and innovation, act as significant brakes on European corporate growth and global competitiveness.
- The valuation discount on European equities, often cited as a reason to invest, may instead be a “value trap,” reflecting lower growth expectations and systemic risks.
- Capital markets in Europe remain fragmented and less dynamic than in the US, compelling high-growth European firms to seek funding and listings across the Atlantic, further draining the continent of future economic champions.
The Anatomy of a Widening Gap
Mr. Dimon’s comments, made at an event in Dublin, highlighted a stark statistical reality. Around two decades ago, the economies of the Eurozone and the United States were roughly equivalent in size. Today, the US economy is considerably larger, with European GDP now equating to about 65% of America’s output. This is not a blip; it is the result of a long-term trend of anaemic productivity growth and a failure to cultivate world-leading companies in the highest-growth sectors of the global economy, particularly technology.
While the US market is dominated by technology behemoths, Europe’s largest listed companies are overwhelmingly concentrated in older industries like consumer staples, healthcare, and industrials. This disparity is reflected in market performance and valuation. Examining the core indices demonstrates the performance chasm and the rationale behind the valuation gap.
| Metric | S&P 500 (US) | STOXX Europe 600 (EU) | Key Implication |
|---|---|---|---|
| Forward P/E Ratio | ~21.0x | ~14.5x | Europe appears cheaper, but this reflects lower growth expectations. |
| Projected EPS Growth (2024) | ~11% | ~4% | US earnings are forecast to grow at nearly three times the rate of Europe’s. |
| Technology Sector Weighting | ~30% | ~7% | US index is heavily exposed to high-growth tech; Europe is not. |
The data suggests that Europe is not simply inexpensive; it is priced for stagnation. The “cheap” valuation is a function of a fundamentally different and lower-growth composition.
Structural Fault Lines Run Deep
Three core issues contribute to this uncompetitive posture: energy, regulation, and capital markets fragmentation.
The Energy Disadvantage
For decades, European industry benefited from relatively inexpensive Russian gas. The abrupt end to this supply chain exposed a critical strategic vulnerability. While the continent has adeptly built out LNG import capacity, it is now structurally reliant on higher-cost global energy markets. In contrast, the US has become a net energy exporter, affording its industrial base a significant and durable competitive advantage through lower input costs. This is particularly damaging for Europe’s energy-intensive sectors, such as chemicals, glass, and heavy manufacturing, which are now facing immense margin pressure.
A Climate of Caution, Not Creation
Europe’s regulatory philosophy, while often well-intentioned in areas like data privacy (GDPR) and digital markets (DMA), has inadvertently created a challenging environment for rapid, scaled innovation. The focus on pre-emptive regulation and the penalising of perceived anti-competitive behaviour can stifle the “winner-takes-all” dynamics that create technology giants. This approach stands in stark contrast to the more permissive, and at times chaotic, ecosystem in the US, which has proven far more effective at nurturing nascent technology firms into global leaders. The result is a persistent “innovation deficit,” where Europe is a prolific generator of scientific research but struggles to commercialise it at scale.
Fragmented Capital, Fleeing Ambition
Despite the single market, Europe lacks a truly unified capital market. Liquidity is split across numerous national exchanges, and venture capital ecosystems are dwarfed by their US counterparts. A promising European tech start-up looking for significant growth funding often finds the deepest pools of capital, the most experienced investors, and the clearest path to a high-valuation IPO in the United States. This brain and capital drain is a self-perpetuating cycle: as the best firms leave, the local ecosystem becomes less attractive for the next generation, further entrenching US dominance.
Positioning for a Divergent Future
For global allocators, the implications are clear. An underweight position on broad European equities, particularly those exposed to cyclical and energy-intensive industries, seems a prudent default stance. The argument for value is tenuous when the underlying growth drivers are so demonstrably weaker than in other regions.
However, opportunities may exist in specific niches. Certain European luxury goods firms, healthcare giants, and advanced manufacturing specialists possess global brands and technological moats that can insulate them from regional malaise. The more compelling, if speculative, opportunity lies in the theme of transatlantic acquisition. As the valuation gap persists, well-capitalised US firms and private equity funds are likely to view European industrial and technological assets as attractive targets. A wave of cross-border M&A could see US buyers acquire strategic capabilities at a significant discount, effectively importing European innovation at a bargain price.
The ultimate hypothesis to monitor is not one of slow decline but of accelerated consolidation. If Europe cannot resolve its structural impediments, its role may shift from that of a global economic peer to a fertile hunting ground for foreign capital. The key indicator will be the flow of talent and early-stage ventures; should they continue their westward migration, the competitiveness gap will have become a permanent chasm.
References
1. Lynch, D. J. (2024, July 10). Jamie Dimon gets real on Europe: ‘You’re losing.’ Fortune. Retrieved from https://fortune.com/2024/07/10/jamie-dimon-tells-europe-youre-losing-not-good-tariffs-jpmorgan/
2. Son, H. (2024, July 11). Jamie Dimon has a blunt message for Europe: ‘You’re losing.’ CNBC. Retrieved from https://www.cnbc.com/2024/07/11/jamie-dimon-has-a-blunt-message-for-europe-youre-losing.html
3. Taub, E. (2024, July 10). Jamie Dimon Says Europe Is Losing. Political Wire. Retrieved from https://politicalwire.com/2024/07/10/jamie-dimon-says-europe-is-losing/
4. FactSet. (2024). Earnings Insight. Retrieved from public FactSet research reports on S&P 500 and European market earnings.
5. STOXX. (2024). STOXX Index Factsheets. Retrieved from public STOXX documentation on index composition and sector weights.
6. International Monetary Fund. (2024). World Economic Outlook. Retrieved from IMF public data portal.
