Uptick Driven Largely by Mature Markets; But Not A Return to Pre-Crisis Growth Rates
After a decade of almost continuous slowdown, global productivity is beginning to recover. Following an uptick in 2017, global labor productivity growth will continue improving through 2018, according to the latest release of annual productivity growth rates for 123 countries by The Conference Board, the global business research organization.
The 2018 Productivity Brief, based on data from The Conference Board Total Economy Database™, projects global productivity to improve to 2.3 percent in 2018, up from 2.0 percent in 2017, and 1.4 percent in 2016 (see tables on pages 4-5). Labor productivity growth — defined as additional output per employed person or per working hour — relates output growth to changes in employment.
“Despite a higher overall productivity growth rate globally, mature economies are driving the train, and will account for nearly 40 percent of global productivity growth in 2018,” said Bart van Ark, Chief Economist at The Conference Board. “While emerging economies are still catching up to mature economies’ productivity levels, this process is slowing down.”
“For 2018, we project further improvement in productivity growth, as firms globally are using the cyclical upswing to increase their spending on automation and digitization, ahead of hiring more people,” added Klaas de Vries, Associate Economist at The Conference Board. “Despite this improvement, the pre-crisis rate when global productivity grew on average 3.0 percent per year (2000-2007) remains an elusive target.”
Mature Economies Drive Global Productivity Growth
Among mature economies, productivity growth improved markedly in 2017, especially in the United States, and to a lesser extent in Europe and Japan. The Conference Board projects further productivity improvements in 2018 but with some important differences across regions:
- In the United States, labor productivity growth will be especially strong (from 0.8 percent in 2017 to 1.5 percent in 2018 on a person employed-basis; and from 1.0 to 1.3 percent on a per hour-basis) because of a marked improvement in output growth. Growth in employment will be similar to 2017 even though working hours per person are slightly up.
- The improvement in Euro Area labor productivity growth (from 0.9 percent in 2017 to 1.2 percent in 2018 on a person employed-basis; and from 1.0 to 1.1 percent on a per hour-basis) will be largely driven by a slowing rate of growth in employment and working hours compared to 2017.
- At 0.8 percent output per hour growth, productivity in the UK is one of the slowest among large mature economies and shows no sign of improvement despite a substantial slowdown of growth in total hours worked to only 0.5 percent.
- Compared to the UK, an even bigger slowdown in total hours worked in Japan to 0.2 percent in 2018 also does not help to accelerate the growth in output per hour much from 0.9 percent in 2017 to 1.1 percent in 2018.
Emerging Markets: Productivity Growth Rates Still Much Higher Than in Mature Markets, but Leveling Off
The average growth rate in output per person employed for emerging markets and developing economies climbed from 2.2 percent in 2016 to 2.8 percent in 2017. But for 2018, The Conference Board projects not much of an improvement (2.9 percent), as both employment and GDP growth slightly improve at about the same rate.
- China’s productivity growth strengthened to 4.1 in 2017 (up from 3.6 percent in 2016), as output growth improved while total employment growth grinded to a halt in 2017, driven by an aging population. In 2018, negative population growth, a slowing participation rate and stable unemployment rates are driving employment growth into negative territory for the first time in over fifty years. With output forecast to slow down only marginally, productivity growth is expected to improve slightly from 4.1 percent in 2017 to 4.3 percent in 2018.
- Among the world’s largest emerging markets, India continues to boast the highest labor productivity growth rates despite showing a slower rate in 2017 compared with 2016. With stable employment growth, but somewhat improved output growth, productivity growth rates for 2018 are forecast to show improvement (from 4.8 percent last year to 5.2 percent in 2018), reaching twice the global average.
- Brazil is one of the largest emerging markets to show a negative productivity growth rate for 2018 (-0.2 percent). The effect could be characteristic of Brazil’s recovery path as employment has finally begun to improve at a faster rate than the output recovery so far.
- In Mexico, productivity is projected to improve from 0.8 percent in 2017 to 1.3 percent in 2018, but this improvement is largely determined by a projected slowdown in employment growth whereas output growth is only slightly moderating. This estimate is therefore highly sensitive to uncertainties about Mexico’s growth path, upcoming elections and uncertainties with regard to the future of NAFTA, which could slow output more than projected.
- Sub-Saharan Africa is forecast to finally move out of negative productivity growth rates in 2018 (from -0.1 percent to 0.7 percent), as output is catching up with surging population growth in the region.
The Productivity Revival
As the business cycle ages, an ongoing strengthening of business spending on machinery and equipment as well as digital services will contribute to translating innovation in products, services and processes into greater efficiency, or total factor productivity growth. Unless adverse policy measures (such as too rapid monetary tightening or an escalation of global trade disputes) halt the current recovery prematurely, the productivity rebound is likely to continue.
“The improved productivity numbers for 2017 and 2018 are no guarantee for future success,” adds van Ark. “We are clearly not out of the woods yet. Risks of secular stagnation are still looming, driven by weak population growth in mature economies, exacerbated by a backlash against immigration. Combined with weak pressures on inflation, these developments are not going to be positives for innovation and productivity growth. But as rising labor and talent shortages are becoming increasingly urgent, productivity growth will be the only way to bring potential growth back to higher levels. No opportunity should therefore be missed to ride the current wave.”
For more information on The Conference Board Total Economy Database™, Productivity results (2018 update):
For more information on The Conference Board Global Economic Outlook (February 2018 update): https://www.conference-board.org/data/globaloutlook/
For related information on international comparisons of manufacturing sector productivity:
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