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Productivity growth to accelerate to 1.7% this year
Jan '08
Recession concerns and the credit crunch cloud the U.S. economic outlook for 2008, but U.S. productivity growth will accelerate to 1.7% this year, while Japan's rate will pick up to 1.9%, according to the latest annual productivity report from The Conference Board, the global business research organization.

With business cycles past their peaks, annual productivity growth in the advanced economies has slowed to between 1% and 1.5%. Despite better European performance in the past two years, the U.S. maintains its productivity edge over the longer term.

Productivity growth rates in Europe, Japan, and the U.S. were low in 2007. At 1.1%, U.S. labor productivity growth continued to underperform compared to the longer-term, structural productivity trend of between 1.5% and 2.5%. Growth rates for Europe and Japan came in at just 1.4%.

U.S. labor productivity growth was close to that of many European countries, such as Germany (1%) and France (0.6%). Only five countries (Austria, Finland, Greece, Ireland, and the U.K.) saw productivity growth rates well in excess of the U.S.

The U.K. recorded the fastest labor productivity growth rate in the EU-15 at 2.9%, which is the result of very strong GDP growth at 3.1%, but a meager improvement in working hours at only 0.2%.

The report warns that advanced economies will need to raise annual productivity growth to well above 2% over the next two decades to maintain current living standards. Given the limits to labor force growth almost everywhere, the onus will be on technology and innovation to drive the growth process.

Despite the slow increase in U.S. labor productivity, the level of GDP per hour worked is still among the highest in the advanced economies. In 2007, output per hour worked was U.S. $52.10—very close to the levels of France, the Netherlands, and Austria, and only significantly behind two smaller economies: Norway ($70.10) and Luxembourg ($70.30).

Meanwhile, in emerging economies, productivity growth continued to accelerate, topping 8% in the BRIC (Brazil, Russia, India, China) countries on average in 2007, accelerating from 7.5% between 2000 and 2005.

There were large differences between the individual economies, however, with China notching up 10.6% growth while Brazil managed just 1.9%. Employment growth was slowest in Russia (0.6% from 2000-2007), followed by China (1%), but much faster in Brazil (2.7%) and India (2.5%).

Bart van Ark, executive director of economic research at The Conference Board, said: “Rapid adjustment to competitive pressures and greater innovation in emerging economies have made fundamental and lasting changes in the global competitive landscape.

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