EU lagging on digital economy transition: European Central Bank

By Carrie Wood · June 29, 2020

Many countries in the European Union are falling behind when it comes to the adoption of digital technology that may bolster markets, according to a report released Monday by the European Central Bank.

The paper, “Virtually everywhere? Digitalisation and the euro area and EU economies,” examines how the introduction of new technology has impacted and influenced the productivity, employment and investing trends in EU member countries. It found that, at large, European Union economies have lagged behind their competitors – notably the United States – when it comes to the successful adoption of these technologies.

“Not all countries in the EU are near the frontier of dissemination, and adoption of digital technologies, and the firms and workers at the very forefront of the digital revolution are often found outside the EU,” the report said. “This may raise the question as to whether the EU needs a more far-reaching digital policy agenda to overcome second-mover disadvantages, advance closer to the technology frontier and remain competitive in global markets.”

The report notes that the digital economy is larger in the U.S. than in all EU and euro area countries except for Ireland and Finland. The U.S. digital economy accounts for more than 8% of its total economy value added, compared to 6.5% for the EU and 6% for the euro area.

The ECB said that Nordic countries have tended to have the largest digital economies, with Greece and Portugal among those with the smallest. Some EU countries have also been turning increasingly to services such as cloud computing, with Estonia and the Netherlands showing high adoption rates of this technology as of 2018, with up to 70% of firms using it as of 2018.

With the global COVID-19 pandemic driving many different types of businesses to quickly pivot into digital offerings to keep capital flowing, the ECB said that the situation may provide the opportunity that EU countries need to catch up.

“Firms, workers and consumers are rapidly becoming more accustomed to, and familiar with, using digital technologies – such as video conferencing, teleworking or working from home, online banking and online shopping – which may result in an acceleration of digitalization, possibly leading to structural change across economies, with implications for labor markets, growth and productivity,” the report said. “This may provide challenges among the EU countries but may also provide opportunities for them to catch up and further develop their digital economies.”

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