As a report series led by McKinsey showcases, Europe can be split into Digital Challengers – characterized by accelerated digitalization rates – which mostly overlap with CEE (Bulgaria, Croatia, Czechia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia), Digital Frontrunners – leading the digital transformation – that encompass the Benelux states and the Nordic ones (including Estonia), and Big 5 – Europe’s largest economies with an already high digitalization rate – which includes France, Germany, Italy, Spain, and the UK.
A rising trend
Therefore, we can observe that as Europe shifts towards a tech-driven economy, Digital Challengers recorded impressive growth and seem to represent a promising cluster of states. Hence, between 2017 and 2021, their digital economies (understood as the sale value within the e-commerce and ICT sectors, as well as offline spending on digital goods) rose from EUR 82.2 bln to EUR 124.4 bln (maintaining an average of 9% year to year growth), increasing at almost double the rate in which the region’s GDP grew (roughly 4% per annum). Also, within the same period, they exceeded both the Digital Frontrunners and Big 5 economies (with almost double and respectively triple the growth rates) when it comes to both values.
While it holds true that Frontrunners already are highly digitalized economies, and Big 5’s size simply doesn’t allow any sudden or massive growth to occur, the Digital Challengers might converge with them sooner than expected, as they also have the largest prospective growth (set at around 10%). This means that by 2030, the region could gain over EUR 206 bln in revenue from the development of these sectors at the current annual growth rate.
Since local e-commerce unicorns like Allegro, Alza, Emag, Vinted, and Answear pursued this route long before the pandemic, it seems that the Digital Challenger’s competitiveness and business dynamics support the capitalization of opportunities in the online world (as the pandemic made the local e-commerce sector reach in 2021 a value of almost EUR 70 bln). Moreover, the development and implementation of e-governance solutions, levels of workers’ productivity in digital industries, and ITC educational trends are all almost on par with the Big 5 states and just slightly behind the Frontrunners.
No slowing in sight
Therefore, despite the disruptions caused by the pandemic, semiconductor crisis, and war in Ukraine, the Digital Challengers are expected to continue outpacing Frontrunners and the Big 5 in terms of growth in the tech and digital sectors for the following years while still maintaining around half of the latter’s GDP per capita values. In this sense, the digital economy should amount to a quarter of their GDPs by 2025.
Having a huge talent pool in these domains, high-quality digital infrastructure, vibrant startup ecosystems, and bypassing technology lock-in, the Digital Challengers might stand a chance of becoming Europe’s Silicon Valley if they continue developing these areas. Also, the fact that they have directed more than 20% of the EU’s Resilience and Recovery Funds towards developing digital sectors means that increased resilience and performance might be seen in the future.