<p>Productivity slowdown in Europe should be attributed to a long-term shift toward low-productivity activities. The standard Kaldor-Verdoorn framework emphasizes the links between manufacturing and productivity growth. Recent evidence suggests that certain knowledge-intensive service activities – related to information and technology – are essential for productivity. Such a modified perspective aligns with Rodrik and the importance of the service sector as it can generate positive spillover effects. The expansion of knowledge-intensive services is essential for innovation, and for further advancing production capabilities. The findings suggest that productivity deceleration is attributed to changes in the composition of sectoral output, with uneven effects across EU countries. Economies with trade deficits experience weaker productivity gains from manufacturing growth compared to surplus economies, indicating structural limitations of their manufacturing sector. Additionally, the analysis indicates that the impact of finance, insurance, and the real estate (fire) differs between these two groups: in surplus economies, fire can act as a source of domestic demand, whereas in deficit economies, its effect on productivity growth is constrained, if not uncertain. Policies that promote synergies between high-value service activities and core industrial sectors could be essential for reversing productivity stagnation and fostering more balanced economic development across the EU.</p>