Productivity of EU falls behind its trading rival
European Union policymakers are facing calls to stimulate public and private investment after new figures showed the bloc’s economy is falling further behind the United States in terms of productivity, leading to fears of what has been called a “competitiveness crisis”.
There are several contributory factors, including the US having a younger population working longer hours with data also showing they are more productive, as well as fiscal stimulus focusing on green industries, while Europe has suffered more directly from the impact of the conflict in Ukraine.
For the last two decades, labor productivity in the US has been more than double that of the eurozone and the United Kingdom. According to the Financial Times newspaper, data published on Friday showed that in the fourth quarter of last year, eurozone productivity was down 1.2 percent from the same period 12 months earlier, while in the US it went up by 2.6 percent.
Even before these figures were revealed, Isabel Schnabel, a member of the executive board of the European Central Bank, or ECB, had expressed concern about the eurozone’s competitiveness against the US.
She said it was “more urgent than ever” for steps to be taken to close the trans-Atlantic productivity gap and deal with the “competitiveness crisis”.
Concerns expressed
The figures back up concerns expressed last November about the economic health of the eurozone and its prospects for improvement.
“Europe has been through a year of zero growth and is now heading into a year in which both monetary and fiscal policies are designed to put a brake on growth,” Erik Nielsen, economics adviser at UniCredit, told Reuters.
“The European economy has been flat on its back for a year (and) the monetary and fiscal policy plans for 2024 seem to accept the high probability of another lost year.”
ECB’s chief economist Philip Lane described the situation and the immediate term prospects it was shaping as “an avoidable own goal”.
“Many countries, where they were in the 1990s, they’re behind that now. There’s not been progress — there has been regress,” he added.
Gilles Moec, chief economist at insurance company AXA, said the problem was so persistent that fundamental economic change, rather than tinkering, may be required.
“We have stalled productivity in the eurozone,” he told the FT. “Since the uptick has been persisting for so long, we need to contemplate the possibility that something structural is happening.”