Europe narrows transatlantic productivity gap

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The EU outperformed the US in terms of productivity growth in 2006, but much of the gain stemmed from a cyclical upturn in economic growth, according to the 2007 EU Economy Review, presented by the Commission on 21 November.

“Productivity growth in the EU increased to 1.5% in 2006 (1.4% in the euro area) as opposed to 0.9% in the US and the comparison is expected to stay favourable for Europe in 2007-08, although at somewhat lower rates”, the review said. 

The EU has lost ground on the US in productivity since the 1990s, but new data showed a significant pick-up since mid-2005, the report said. 

A significant part of the recent acceleration in productivity growth in the euro zone appeared to be due to improvements in the private sector in Germany, according to the report. German productivity grew by 2.7% in 2006, outstripping France’s rise of 1.2 %. 

Outside the euro zone, Britain’s productivity grew by 2.0% and new EU member states, mainly in eastern Europe, showed strong increases, with Latvia up 7.0%, figures revealed. 

Despite the encouraging signals, “the evidence for a structural and, therefore, durable pick-up in productivity growth remains scant to date”, the report cautioned. 

The structural productivity growth gap with the US reflected the EU’s poor performance in the services secto, particularly in retailing, distribution and financial and business services, according to the Commission. 

Less effective use of ICT, slower adaptation of work practices and the insufficient promotion of competition were the main reasons for the transatlantic gap, the review said. 

Encouraging results came from the so-called network industries, where the EU has done significantly better than the US, “helped by efficiency gains associated with the deregulation drive over the last two decades,” the report said. 

The report concluded by stressing the “crucial importance” of fully implementing the Lisbon Strategy, which aimed at making the Union the most competitive knowledge-based economy in the world by 2010, by increasing research and development investment and removing barriers to the EU’s single market. 

“Europe needs to sharpen its competitive edge to enjoy the full benefits of globalisation. And improving productivity is one of the necessary conditions for improving competitiveness”, Economic and Monetary Affairs Commissioner Joaquin Almunia commented in the report. 

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