'Old world' economies struggling to compete

Jan 20 2006 by Nic Paton Print This Article

Western Europe and the U.S are experiencing a dramatic slump in their rates of productivity growth as the emerging markets of central and eastern Europe, China and India continue to flex their economic muscle.

According to a study of global productivity trends by the Conference Board, the "old world" began to find the new economic world much tougher in 2005.

The 10 new European Union member states in central and eastern Europe delivered a spectacular acceleration in labour productivity growth in 2005, the Conference Board found.

On average, the EU 10 increased labour productivity growth rate from 4.1 per cent in 2004 to 6.2 per cent in 2005.

Most of the EU 10 showed an improvement in productivity growth, with Poland, Hungary and Slovakia registering the most marked increases. Poland's productivity level is now higher than South Korea's, it said.

In contrast, most countries in the developed world, including North America, Western Europe and developed Asia experienced a slowdown in productivity growth in 2005, with rates in the 1.5 to 2 per cent range.

Productivity growth in the EU-15 dipped from 1.4 per cent in 2004 to 0.5 per cent in 2005 caused in part by a sharp fall in productivity gains in major economies such as the UK (which declined from 2.3 in 2004 to 0.9 per cent in 2005).

Another factor was continued slow growth in Germany (at 0.9 per cent). In addition there were large productivity slowdowns in Finland, Belgium and Luxembourg and actual declines in productivity in Italy and Spain.

Ireland, which topped the EU-15 league for 1995-2003, also saw a slowdown to less than 1.5 per cent since 2004.

Productivity growth in France remained broadly stable at 1.5 per cent in 2005, down marginally from 1.6 per cent in 2004.

Dr Bart van Ark, Conference Board director for its international economic research programme and co-author of the report, said: "While productivity gains in the large European countries plod along, the emerging markets of central and eastern Europe and Asia are catching fire. Economies such as China and Poland are accelerating to around 8 per cent.

"Many of the EU-15 member states are only slowly coming to terms with the challenges that the world economy places on all advanced and emerging economies to realign competitive forces.

"These developments underline the urgency to deal with structural reforms and stronger innovation efforts," he added.

In the U.S, the times of extraordinarily high labour productivity growth rates are gone, at least for now, the Conference Board also found.

Though still healthy compared with many other developed nations, its productivity growth rate slumped to 1.8 per cent in 2005, down from 3 per cent in 2004.