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EU Shows Strong Growth Of Productivity In 2006

EU shows strong growth of productivity in 2006

The European Union in 2006 had its best economic performance since 2000 with a growth of the Gross Domestic Product (GDP) of 3%. Productivity, measured by the increase of GDP per employee, grew strongly for the EU-27 with 1,5 %, compared to an annual growth rate between 2000 and 2005 of 1,2.

Employment growth accelerated for the EU-27 by 1,6 %, whilst the average annual rise for the period 2000 until 2005 was 0,5 %.

The European Competitiveness Report of the European Commission, presented today in Brussels, marks as well that in 2006 productivity grew stronger in the EU than in the US (1,4 %), of which the Commission hopes this will be the start of a long term trend.

The growth rates show a widespread improvement, across countries and economic sectors.

Commission Vice-President Günter Verheugen, responsible for enterprise and industry policy, said: "These are very encouraging results, which tell us that that the reforms under the revised Lisbon strategy for growth and jobs are starting to bear fruit.

European industries have managed to maintain their positions on global markets, contrary to American and Japanese producers. Now the challenge is to push forward our reform agenda. I'm still concerned about the spending on research and development, particularly in the private sector. There is a clear need to step it up.''

The Competitiveness Report was redesigned in 2006 to contribute to a solid analytical underpinning of the microeconomic pillar of the Lisbon strategy, dealing with policies fostering technological progress, the use of information and communication technologies (ICT), competition, product markets reform and infrastructures.

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Overall, European industries - services and manufacturing sectors - hold to their positions on the global market better than their US or Japanese counterparts. Less positive has been their internal performance, with a rather low growth of value added, labour and total factor productivity in the period since 1995.

Job losses have been widespread in manufacturing. These are often associated with solid productivity growth, which has sustained the growth in value added of the sector. Sectors which witnessed a decline in both employment and in value added are the production of leather & footwear, clothing, textiles, nuclear fuel and tobacco, as well as the mining industry.

Conversely, apart from water transport (shipping), all the industries with the highest rates of value added growth - communication equipment, office machinery and computers - relate to ICT. Investment in ICT brings high returns in terms of productivity when accompanied by appropriate organisational changes and investment in skills.

The biggest productivity gap compared to the American industry can be found in the manufacturing of office machinery and computers, wholesale and retail trade, air transport, and the financial services.

Microeconomic reforms contribute most to productivity growth in the EU

The report's focus is on productivity, which is the key driver of competitiveness and welfare in the long term. The main source of the gap between EU Member States and the US is total factor productivity, i.e. productivity growth generated by intangible factors such as technical progress or organisational innovation. Therefore, it makes sense for the EU to prioritise the microeconomic reforms known to contribute most to productivity growth, such as:

* Increased investment in R&D, in ICT, education and training;

* Stimulating entrepreneurship by easing the start and growth of companies as well as enhancing the framework conditions for SMEs;

* Reinforcing better regulation practices and cutting red tape.

Another major driver of economic efficiency is competition, either through trade openness, a reinforced Single Market or product market reform. For example, the removal of remaining Internal Market barriers would bring a 2.2% increase in the EU-25 GDP and the creation of 2.75 million additional jobs (equivalent to a 1.4% increase in total employment).

One of the major findings of the Competitiveness Report is that coordination at EU level when carrying out these reforms reinforces their effectiveness because of positive cross-border knowledge spill-over effects and synergies among complementary policies.

The European manufacturing industry will continue to be an engine of growth for the entire economy. Implementing the policies discussed above will further improve the outlook but much will also depend on the ability of European manufacturing firms to capitalise on the opportunities that global challenges, such as ageing and climate change, represent.

Technologies that permit to operate within much stringer environmental constraints than today will offer lead market opportunities.

Growth of labour and total factor productivity is likely to stay a major concern of European policies in coming years, especially in the context of an ageing population. This underlines the crucial role of the Lisbon strategy and of its microeconomic pillar.


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