EU overtakes US in productivity growth

For the first time since 2001, the EU has outstripped the US in productivity growth, according to a recent competitiveness report from the European Commission that sees Europe ‘on a growth path’.

The EU hailed its best economic performance since 2000 with growth rates at 3% and worker productivity growing strongly at 1.5% in 2006, according to the Commission’s annual competitiveness report, published on 5 November. Productivity grew stronger in the EU than in the US (1.4%) in what the Commission hopes is a “long-term trend”.

The report especially focuses on productivity, which is seen as “the key driver of competitiveness and welfare in the long term”. However, in real terms, the EU is still lagging behind the US, where productivity per person employed is about 39% higher. Thus the EU is only just starting to narrow its productivity gap with the United States.

Industry Commissioner Günter Verheugen said that the results were “encouraging” and that reforms under the Lisbon Strategy for Growth and Jobs were finally “starting to bear fruit”.

However, the Commission Vice-President also criticised the fact that spending on research and development was insufficient. “There is a clear need to step it up,” Verheugen said. Concerning R&D, some member states, such as Cyprus, Slovakia, Luxembourg and Poland, still have a long way to go to meet the Lisbon targets, set at 3% of GDP.

Overall, the European industries (services and manufacturing) retain their positions on the global market better than their US or Japanese counterparts, according to the report. At the same time, internal performance has been less positive, with rather low growth in value-added, labour and total factor productivity since 1995.

Competition through trade and openness is seen as a major driver of economic efficiency. The removal of the remaining internal market barriers could increase EU GDP by 2.2% and create 2.75 million additional jobs, according to Commission estimates.

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