Global Productivity Slowdown Moderated in 2013

NEW YORK, Jan. 14, 2014 /PRNewswire/ -- Worldwide productivity growth weakened for the third straight year in 2013, according to a new report from The Conference Board, but the decline moderated significantly. The 2014 Productivity Brief, based on data from The Conference Board Total Economy Database™, reports that global labor productivity (output per person employed) grew by 1.7 percent in 2013, down from 1.8 percent in 2012, 2.6 percent in 2011, and 3.9 percent in 2010. Since the emergence of large developing markets like China and India in the early 1990s, productivity growth has rarely fallen below 2 percent, except during the 2001–2 and 2008–9 recessions.  

Productivity Stabilizes in Mature Economies, Slows Further Elsewhere

"The worldwide productivity slowdown moderated in 2013," said The Conference Board Chief Economist Bart van Ark, "largely due to the stabilization of productivity growth rates in mature economies. Nevertheless, productivity growth rates for most countries remained very low in 2013."

Labor productivity growth relates output (or GDP) growth to the changes in numbers of persons employed or total hours worked.  Among the advanced economies, growth in output per person employed in the United States held steady at 0.9 percent in 2013, while output per hour grew at 0.8 percent, up from 0.7 in 2012. Europe even saw gains in output per person employed — from 0.1 percent growth in 2012 to 0.5 percent in 2013 (or 0.4 percent in the Euro Area, up from −0.1) — as the output contraction due to the recession abated. But output per hour in the Euro Area fell slightly, from 0.7 percent in 2012 to 0.6 percent in 2013, as declines in hours worked per person eased.

While their productivity growth rates generally remain much higher than mature economies', emerging and developing economies saw productivity growth continue to decelerate in 2013, in the wake of weaker performance in large markets, including China, India, Brazil, and Mexico. Overall, labor productivity growth in emerging and developing economies slowed from 3.7 percent in 2012 to 3.3 percent in 2013.

"Emerging markets, and especially China, account for the bulk of world's productivity growth," said Abdul Erumban, senior economist at The Conference Board and co-author of the report.  "But the years of rapid, easy improvement appear to be over. Since these countries remain significantly less productive than mature economies in U.S. dollar terms, the ongoing shift of economic activity away from the latter adds to the global productivity slowdown."

Inefficient use of resources remains major concern

The report also uses a second, more sophisticated measure called total factor productivity that accounts for the productivity of labor and capital inputs together. In 2013, total factor productivity dropped below zero for the global economy. "This indicates stalling efficiency in the optimal allocation and use of resources," said Erumban. "While in part the result of slowing global demand in recent years, the drop in productive use of resources is also related to a combination of market rigidities and stagnating innovation in those economies."

Productivity projected to improve in 2014

At 2.3 percent globally, the Productivity Brief projects labor productivity growth to improve fairly substantially in 2014 after three years of declines. "The overwhelming driver in this year's productivity gains will be an uptick in output growth," said van Ark. "This reflects a pro-cyclical effect from recovery in the mature economies, though developing economies will also contribute."

The U.S. is likely to be the greatest contributor, with growth in output per hour expected to double to 1.8 percent in 2014, on the basis of flexible markets capable of quickly responding to strengthened demand. Japan will contribute to a lesser extent, with productivity growth rising from 0.8 to 1.2 percent. The Euro Area will slowly emerge from recession in 2014, but labor-market lag will keep growth in output per hour steady at 0.6 percent. Within Europe, some discrepancies will widen as others shrink: Productivity growth in Germany will rise to 1.2 percent, while holding roughly steady at 0.4 percent in both France and the U.K.

Productivity growth is also expected to improve in emerging and developing economies, but a return to the past decade's growth rates (nearly double today's) seems out of the question. While China's high productivity growth should decline further — to 6.7 percent — Brazil, India, Russia, and Mexico are all projected to improve slightly. Nevertheless, the vast productivity gains achieved since the 1990s in many of these countries will leave further improvements harder to come by.

2013 Highlights: Productivity Growth Stabilizes in Mature Economies

In the advanced economies as a whole, output growth and labor market performance averaged out in 2013 to keep productivity growth steady. But important regional differences were apparent. 

• In the United States, GDP growth fell from 2.8 percent to 1.9 percent in 2013, while total hours worked grew 1.1 percent, down from 2 percent in 2012. These figures offset each other in maintaining weak labor productivity growth. Measured as output per person employed, productivity growth held steady at 0.9 percent; measured as output per hour worked, it rose from 0.7 to 0.8 percent. Whereas manufacturing has led U.S. productivity gains in recent years, slower global demand reversed the trend in 2013, when the services sector performed better.
• In the Euro Area, output and total hours worked both contracted in 2013, but less sharply than a year earlier.  Overall, as measured in output per hour worked, productivity growth fell to 0.6 percent from 0.7 percent in 2012. Driven by large contractions in hours worked that outstripped output declines, Italy and Spain both saw positive gains in labor productivity—0.2 percent and 1.4 percent, respectively. However, other troubled economies saw productivity decline significantly, led by Greece (−0.7 percent), Slovenia (−0.6 percent), and especially Cyprus (−7.4 percent). Productivity growth was positive and steady in France and Germany, at 0.3 and 0.4 percent, respectively.
• Conditions in the wider European Union-27 largely mirrored those of the smaller 17-member bloc, with some notable developments in Eastern and Central Europe. Labor productivity in Poland, the region's largest economy, grew 1.4 percent in 2013, down from 5.6 percent a year ago. With output per hour still just 38.3 percent that of the U.S., Poland maintains substantial scope for improvement.
• Meanwhile, the United Kingdom emerged from recession with 1.3 percent GDP growth. Coupled with 0.9 percent growth in hours worked (significantly slower than a year ago), U.K. labor productivity growth recovered from −1.8 percent in 2012 to 0.5 percent in 2013. Nevertheless, output per hour worked in the U.K. remains well below its continental rivals, at just 76 percent of the U.S. level, compared to France's 88 and Germany's 85 percent. The European Union average—encompassing economies from Luxembourg (109 percent) to Bulgaria (25 percent)—is 68 percent of the U.S. level.
• In Japan, GDP growth fell slightly to 1.8 percent despite a large monetary and fiscal stimulus. Combined with a pickup in hours growth, this drove down productivity growth from 1.2 percent in 2012 to 0.8 percent in 2013. With a comparatively weak services sector, Japan's output per hour remains below even Europe's, at 65 percent of the U.S. level.

2013 Highlights: Slowdown Continues in Developing and Emerging Economies   

Stagnant gains in the rich countries once offered an opening for other economies to rapidly make up productivity gulfs that remain yawning in absolute terms. (Output per person employed in China, Brazil, and India remains just 17, 17, and 8 percent of U.S. levels, respectively.) In 2013, however, emerging and developing economies drove the overall slowdown.

• China still boasts among the fastest productivity gains in the world. But after falling to 7.1 from 7.4 percent in 2012 (and 8.8 percent in 2011), the 2013 labor productivity growth rate is the lowest in a decade. As measured by total factor productivity, sustained investment growth in China does not seem to be returning the same efficiency gains as before; future leaps in technology and innovation that take significantly more time to materialize. Hampered by similar challenges as well as unique problems related to inflation, deficits, and stalled structural reforms, labor productivity growth in India has seen a much sharper fall. In 2013, output per worker rose just 2.4 percent, down from 3.1 percent in 2012 and 5.8 percent in 2011.
• Though affected by the global exports slowdown, the ASEAN countries of Southeast Asia have been effectively insulated by strengthening domestic sectors. Malaysia and Vietnam saw productivity growth improve further in 2013, while Thailand, the Philippines, and Indonesia experienced declines. But growth rates across the region remain relatively high from 2.5 percent in Thailand to 4.6 percent in the Philippines.
• A serious slowdown stabilized in Latin America, where labor productivity grew at 0.7 percent in 2013, down from 0.8 percent in 2012 and 1.7 percent in 2011. The region's two major economies moved in opposite directions. In Brazil, productivity growth recovered to 0.8 percent from −0.4 percent, while productivity growth in Mexico fell from 0.4 to 0.3 percent. Total factor productivity, however, contracted in both countries, revealing shared inefficiencies in resource use—these include inadequate infrastructure, high payroll taxes, and insufficient investment in new technologies.
• Weakening oil prices and continued political unrest decelerated productivity growth in much of the Middle East.
• Meanwhile, labor productivity across Sub-Saharan Africa held steady at 2.1 percent in 2012, though productivity per person employed remains just 5 percent of the U.S level. In Russia, the growth rate roughly halved to 1.6 percent in 2013, driven by a GDP decline that outstripped employment contraction. Russia retains much room for improvement, with productivity standing at just 34 percent of the U.S. level.  

The data for the 2014 Productivity Brief is drawn from The Conference Board Total Economy Database™, which provides a comprehensive overview of growth rates of productivity, GDP, and employment for 123 economies representing 97 percent of the world's population and 99 percent of global output. The results from the current report align well with the weakening of productivity in manufacturing sectors across many advanced economies, as published last December as part of The Conference Board International Labor Comparisons Program.

See 2014 Productivity Brief: Key Findings for additional data and detailed analysis on individual countries and regions at http://www.conference-board.org/data/economydatabase/

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