ISTANBUL 

Companies in the EU grow and innovate less than their American counterparts, according to the International Monetary Fund (IMF) on Wednesday.

The report said productivity and innovation among large companies have diverged markedly across both sides of the Atlantic, stemming from a productivity gap across all industries, but particularly in technology sectors.

While market valuations of US-listed companies have more than tripled since 2005, Europe's have grown by only 60% since then, said the report. Productivity for US tech companies has surged by nearly 40% since 2005, but it remained little changed for European companies, it added.

"This significant difference is underpinned by much greater innovation efforts among enterprises in the United States, where research and development spending as a share of sales is more than double that of Europe," it said.

"Europe also suffers from a broader lack of business dynamism beyond large corporations. There is a lower number of startups, and too few among them grow fast and eventually become large firms," it added.

The IMF noted that the fastest growing startups in the US employ six times more people than their European counterparts, based on share of total employment.

The financial agency advised that deepening the European single market would lift some growth constraints for Europe's most productive firms.

Removing remaining barriers to trade within the EU, in addition to advancing the capital markets union, would also incentivize firms to undertake research and development and other investments, it said.

In the EU, additionally, income per person is on average one-third less than in the US, mostly due to lower productivity, said the report.

"A thriving business sector is key to reducing Europe's large productivity and income per capita gap," it added.