The United States has continued to expand faster and create more jobs than much of Europe. Over the past five years annual national income in the US has risen on average by about 3.3% versus roughly 2.6% in the EU. In the first quarter of 2026 US GDP was about 2.6% higher than a year earlier, while EU output was up only 0.7% on comparable measures.
Those outcomes may seem surprising given large policy shocks since 2025: a global tariff regime and, a year later, a war with Iran. Economists point to several structural and policy differences that have helped the US absorb those shocks and sustain growth.
One clear factor is fiscal policy. The US runs substantially larger budget deficits than most European countries. By spending more than it collects in taxes, the federal government directly puts income into the hands of employees, contractors and suppliers, supporting overall demand. In 2025 the average EU budget deficit was about 3.1% of GDP, while the US deficit was roughly 5.8% of GDP, delivering a stronger fiscal stimulus to growth and employment.
The composition of investment also matters. The US devotes a bigger share of GDP to business investment and to research and development. Since 2025 a concentrated wave of investment in artificial intelligence and related digital technologies has reinforced the US lead in platforms and high‑value tech. Faster AI adoption across sectors has widened the US advantage in labor productivity: output per hour in professional services has climbed by more than 18% since 2019 in the US, compared with only about 5% in the EU.
These productivity gains have helped real wages in the US edge up since 2019, sustaining consumer spending while allowing corporate profits to rise and lifting equity valuations to record levels. By contrast, average real wages across many EU countries have hardly grown over the past two decades and corporate profits there remain relatively subdued.
Policy choices affecting the labour and skills pool are another potential constraint on US growth, however. Immigration restrictions introduced under the current administration extend to skilled scientists and students, and research suggests that current GDP growth could be as much as 0.8 percentage points lower than it would be had net unauthorised migration followed earlier trends. That risk notwithstanding, supporters of looser regulation argue that the US economy benefits from a culture that tolerates risk and rapid experimentation, whereas Europe tends to regulate new technologies more tightly and China seeks to steer them through state control. Although Europe produces many start‑ups, a notable share relocate to the US as they scale.
Energy costs give US industry an additional edge. The US produces more fossil fuels, taxes them less and has generally lower industrial energy prices than Europe. At the same time it is expanding cheap renewables, which together keep energy costs relatively low and support a partial reindustrialization focused on data centers, e‑commerce and AI services. Reliance on fossil fuels and slower decarbonisation pose long‑term risks, but for now they provide a short‑term cost advantage for manufacturing and energy‑intensive services.
Favourable international financing dynamics are a final piece of the puzzle. The US consistently spends more on goods and services than it produces domestically, running a large current‑account deficit that must be financed by borrowing from abroad. In most economies rising external liabilities would weaken the currency and force a slowdown or adjustment. The US is different because the dollar is the dominant global currency for trade and reserves. When geopolitical shocks occur, global investors often move money into dollar assets, keeping US asset prices and financing conditions attractive even when US policy is a cause of the shock.
This so‑called “exorbitant privilege” of issuing the world’s main currency has deep roots. Efforts to create a convincing alternative reserve currency have made limited progress, and European financial integration has advanced only slowly, setbacks such as Britain’s departure from the EU further limiting rival financial centres. The dollar’s role reduces immediate balance‑of‑payments pressure on Washington, but it also complicates domestic policy: inflows can strengthen the currency, making US exports less competitive, and the Federal Reserve must weigh international spillovers when setting interest rates.
The combination of big fiscal deficits, strong corporate investment and favorable external financing helps explain why US growth has proved resilient even as its foreign and trade policies have been disruptive. But the distributional effects are politically significant. Growth driven by deficits and rising corporate profits has not translated into broad, rapid gains in living standards for many Americans. As a consequence, public approval for the incumbent administration remains low despite robust macroeconomic indicators. Many households feel wages are not keeping pace with costs and fear future price pressures.
In short, higher fiscal support, concentrated investment in technology and R&D (notably AI), comparative energy cost advantages and the dollar’s global role have combined to keep US growth strong through recent shocks. That strength comes with trade‑offs: geopolitical and environmental risks, a tougher task for inflation management, and persistent concerns about how widely the gains are being shared across society.
