US Productivity Growth To Slow in 2011

  on January 17 2011 7:45 AM

The United States productivity growth will slow substantially in 2011 and could even fall below the rate in the euro area, The Conference Board reported on Monday.

Following its 2010 recovery, the Conference Board forecasts the U.S. economy will remain on a relatively slow growth path, at 2.5 percent GDP growth in 2011.

As the labor market continues its gradual recover, with an expected growth in hours worked of 1.4 percent in 2011, labor productivity growth will rise at 1.1 percent, below its long-term trend of about 1.5 percent.

Euro area GDP (Gross Domestic Product) growth will be below that of U.S. in 2011. With no significant recovery forecast in the euro area labor market, productivity growth at 1.3 percent in 2011 would still be above the region's trend, which had fallen well below 1 percent.

After the labor market recovery in 2011, the labor productivity trend in U.S. may ultimately strengthen beyond 1.5 percent under the influence of a greater potential to innovate and compete globally.

In Europe there are no signs of a return to significant positive growth rates in Total Factor Productivity growth, underlining the urgency for faster technological change and innovation in combination with continued reforms in labor and product markets.

U.S. productivity growth will be tempered briefly in 2011 as employment recovers from its major recession cutbacks but that's temporary -- the underlying productivity growth trend in the United States remains stronger than it is in Europe, said Bart van Ark, Senior Vice President and Chief Economist of The Conference Board.

In 2010, the world economy returned to solid productivity growth, as GDP in most countries recovered strongly from the 2008/09 financial and economic crisis, while employment lagged behind. While advanced regions left recession firmly in the rearview mirror, emerging economies continue to drive both global growth and global productivity growth.

The U.S. economy remained on a higher productivity growth path than Europe in 2010, but their productivity growth rates may converge, at least temporarily, in 2011 as U.S. employment picks up momentum. Global productivity growth may moderate slightly in 2011 as cyclical effects abate.

Global productivity growth has recovered remarkably well following the economic and financial crisis. It remains to be seen whether global productivity growth will return to its pre-recession trend as employment picks up momentum in 2011, said Bart van Ark.

As cyclical effects abate, advanced economies' productivity gains from 2010 will moderate slightly in 2011. Advanced economies saw an above-trend recovery in labor-productivity growth in 2010 but this is projected to decelerate in 2011.

Among emerging countries, China and India remain the largest and most dynamic economies in productivity terms, with respective productivity growth of 8.7 percent and 5.4 percent in 2010.

Turkey's productivity growth jumped in 2010 to 2.2 percent from negative 5.2 percent in 2009. Brazil at 4 percent growth in 2010 outperformed the Latin American region as a whole that saw 3.2 percent growth in 2010. Russia's productivity growth recovered remarkably from a low of negative 6 percent in 2009 to 3.1 percent in 2010.

The long-term trends in world labor productivity and Total Factor Productivity are still weak. In 2011, growth in labor productivity in emerging economies is likely to remain just below 5.0 percent similar to 2010.

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