Euro Zone Productivity Growth Remains Weak

FRANKFURT (Reuters) – Euro zone productivity growth remained weak in the third quarter, despite a modest expansion in the bloc's economy, continuing a poor run that has lasted years, data from Eurostat showed on Friday.

Per capita productivity was unchanged compared to the same quarter a year earlier, while it expanded by 0.5% based on hours worked, at about half the rate of overall economic growth, Eurostat reported.

Productivity growth has been especially weak since the pandemic, and a large gap has opened between Europe and the U.S., driven by various factors that could persist.

Europe struggles with excessive reliance on expensive, imported energy, inefficient labor markets, fragmented regulation, and reliance on exports during a period of deglobalization.

The euro zone's economy expanded by 0.4% in the quarter, unchanged from a previous estimate, while employment was up 0.2%, also consistent with a preliminary figure.

However, there is little to suggest a sustainable recovery, with industry still in recession, weak exports, muted investments, and households opting to save rather than spend.

Despite this, a modest improvement in productivity has been noted, having reached its lowest level a year ago and now turning positive based on hours worked.

A key issue for the ECB is that poor productivity growth puts upward pressure on prices, complicating efforts to steer price growth back to its 2% target.