The US economy continues to outpace Europe in growth and job creation, even after policies and international events that many predicted would dent its performance. Over the past five years annual national income growth has averaged about 3.3% in the United States compared with roughly 2.6% across the European Union. In the first quarter of 2026 US GDP was about 2.6% higher year‑on‑year while EU GDP rose only 0.7% on comparable measures.
Several structural factors help explain this resilience. First, the US runs materially larger budget deficits than most advanced economies. By spending more than it collects in taxes, the federal government pumps additional income into the economy—paying public employees and buying goods and services—which supports demand, output and employment. In 2025 the US deficit was around 5.8% of GDP, versus an EU average near 3.1% of GDP, giving the US a noticeably stronger fiscal stimulus.
Second, the US channels a higher share of GDP into business investment and research and development. Investment in new technologies, especially since 2025, has concentrated on artificial intelligence and digital platforms, helping firms across services and manufacturing lift productivity. Measured output per hour in professional services, for example, has risen by more than 18% in the US since 2019 compared with about 5% in the EU. That productivity growth supports modest real wage gains in the US while also powering strong corporate profits and record equity valuations.
Third, US industry benefits from lower energy costs. The US produces more fossil fuels than Europe and taxes them less, and it is also rapidly deploying cheaper renewable generation. Lower energy and input costs have helped re‑industrialization and given American manufacturers and data‑intensive services a price advantage in global markets.
A fourth factor is the greenback’s dominant role in global trade and finance. The United States runs a large current account deficit—spending more on imports than it earns from exports—but can finance those deficits because foreign investors and central banks hold and buy dollar assets. That demand for dollar financial assets cushions the US from some of the normal consequences of persistent external deficits, such as a sustained currency fall or abruptly slower growth.
These advantages are not without limits. The Trump administration’s tougher immigration rules, including stricter controls on skilled workers and students, could slow the expansion of the technology and research base. Some estimates suggest US GDP growth could be as much as 0.8 percentage point lower than it would have been had net unauthorized migration remained on its pre‑2025 trend. European regulators’ stricter approach to new technologies and China’s state‑led model of tech development also shape different innovation paths: the US market’s greater tolerance for experimentation has so far encouraged faster scaling of AI firms and platforms.
There are also long‑term vulnerabilities. Heavy reliance on fossil energy and weak incentives to curb carbon emissions heighten environmental and transition risks. The dollar’s global role brings benefits but also constraints: large capital inflows can strengthen the currency and make US exports less competitive, and US monetary policy must consider global spillovers when raising rates.
Politically, strong headline performance has not translated into broad public approval. Growth driven by fiscal stimulus and rising corporate profits has coincided with only modest gains in median real wages for many households. As a result, many Americans perceive they are not sharing in the gains: they feel squeezed by higher costs while pay rises have been limited. That dynamic helps explain why strong macroeconomic statistics have so far failed to substantially boost the president’s approval ratings, which remain low.
In short, the US economy’s current outperformance rests on a mix of bigger fiscal deficits, heavier private investment in technology and R&D, productivity gains from rapid AI adoption, lower energy costs, and the dollar’s privileged global position. These features provide a near‑term boost to growth even when US policy choices and international shocks are controversial abroad. But they also create trade‑offs and risks—inequality, environmental exposure, and potential damage to the innovation pipeline from restrictive immigration policy—that could temper the longer‑term sustainability of the US advantage.
Alan Shipman is a senior lecturer in economics at The Open University. This piece is adapted from an analysis originally published by The Conversation.
