Ire­land, Spain lead Eu­ro­zone charge for pro­duc­tiv­ity growth

Financial Mirror (Cyprus) - - FRONT PAGE -

Eu­ro­zone real GDP per hour worked - a mea­sure of labour pro­duc­tiv­ity - grew at a rate of around 2% in the three years to 2015. And a closer look at the data shows that Ire­land has been the top per­former in the pe­riod, with its labour pro­duc­tiv­ity grow­ing by around 7% over the pe­riod.

Large economies like the Nether­lands, France and Ger­many have be­come more pro­duc­tive in line with the bloc av­er­age, while pe­riph­eral economies like Por­tu­gal and Greece have not man­aged to sig­nif­i­cantly in­crease their labour pro­duc­tiv­ity lev­els de­spite car­ry­ing out re­forms over the pe­riod.

But sec­toral for­tunes have been mixed. PwC anal­y­sis shows that in sev­eral Eu­ro­zone economies, pro­duc­tiv­ity in the man­u­fac­tur­ing sec­tor has grown at a rel­a­tively rapid rate.

“This makes sense, as most man­u­fac­tured goods are trade­able and so ex­posed to com­pet­i­tive forces, all of which in­cen­tivise busi­nesses to be­come more ef­fi­cient in a shorter pe­riod of time. Also, new au­to­mated tech­nolo­gies tend to be most read­ily ap­pli­ca­ble in the man­u­fac­tur­ing sec­tor - though they can also ap­ply to more rou­tine ser­vices ac­tiv­i­ties,” said Richard Boxshall, Se­nior Econ­o­mist, PwC.

“There are, how­ever, some out­liers –such as Ire­land, for ex­am­ple, where the dou­bledigit pro­duc­tiv­ity growth rate in its man­u­fac­tur­ing sec­tor could be ex­plained by its highly ef­fi­cient phar­ma­ceu­ti­cal in­dus­try, which ac­counts for around a quar­ter of goods ex­ports.”

But what about the rest of the econ­omy? Around three quar­ters of the Eu­ro­zone’s eco­nomic out­put, and of to­tal hours worked, is in the ser­vices sec­tor; this makes it the big­gest in­flu­ence on econ­omy-wide labour pro­duc­tiv­ity.

The fig­ure above shows that, with the ex­cep­tion of Greece, labour pro­duc­tiv­ity growth in ser­vices lagged be­hind the man­u­fac­tur­ing sec­tor.

“We think there are two main reasons for this trend. First, un­like for the goods mar­ket, the EU still has a lot to do to com­plete the Sin­gle Mar­ket for ser­vices. A pos­si­ble im­pli­ca­tion of this could be that busi­nesses ad­just to com­pet­i­tive forces slower than they would have un­der a freer regime, lead­ing to slower pro­duc­tiv­ity growth,” added Boxshall.

“Sec­ond, there are some sec­tor-spe­cific reasons that could also ex­plain this trend. For ex­am­ple, much of the ser­vices sec­tor is rel­a­tively labour-in­ten­sive, with less scope for gains from tech­no­log­i­cal ad­vances and mech­a­ni­sa­tion. The fi­nan­cial ser­vices in­dus­try has also been sub­ject to more strin­gent reg­u­la­tions af­ter the cri­sis, which may be jus­ti­fied in terms of re­silience and re­duc­ing sys­temic risk to the wider econ­omy, but could also be hav­ing some ad­verse ef­fect on pro­duc­tiv­ity by re­strict­ing the ac­tiv­i­ties they can un­der­take or de­ter­ring in­no­va­tion.”

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