Lack of Eurozone productivity gains: structural, not cyclical

A research note from Patrick Artus of Natixis Research is out on Monday, highlighting how the lack of productivity gains for the Eurozone could be a result of structural weakness, rather than the oft-touted cyclical factors.

Eurozone productivity struggles: lack of meaningful technology investment to blame, not hiring trends

There are two opposing interpretations of the lack of productivity gains in the euro zone since late 2017:

• A cyclical interpretation (the fall in the unskilled unemployment rate);
• A structural interpretation (the low level of investment in new technologies… and an ageing labour force).

By comparing OECD countries, we assess the contribution of structural problems to the slowdown in productivity gains in the euro zone.

When we simulate the productivity gap between the United States and the euro zone with recent data on investment in new technologies, R&D spending and the age structure of the working-age population, we find a productivity gains gap in favour of the United States of 2.5 percentage points per year. This shows that structural explanations can fully explain the stagnation of productivity since late 2017 in the euro zone.