No Rebound in Global Productivity in Sight

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Global productivity growth continues to weaken, creating another headwind for businesses already facing slowing demand for goods and services, according to the latest release of annual productivity growth rates for 123 countries by The Conference Board.

Global productivity growth, which has been trending lower over the last decade, will continue to soften throughout 2016. The 2016 Productivity Brief, based on data from The Conference Board Total Economy Database™, projects global productivity to grow just 1.5 percent in 2016, compared to 1.2 percent in 2015 and 1.9 percent in 2014.

Labor productivity growth — defined as additional output per unit of labor — relates output growth to changes in employment. Among mature economies, output and employment growth are projected to slow down. Productivity growth is expected to moderate from 0.7 percent in 2015 to 0.6 percent in 2016. The U.S. is currently experiencing the slowest productivity growth since 1982 (0.7 percent in 2015, and zero growth projected in 2016), exacerbated by weak investment, making it harder to accommodate increased labor cost pressures or free up resources for much needed innovations in the New Digital Economy.

European economies have shown slightly better productivity performance (currently at 0.9 percent, up from 0.5 percent in 2014) compared to the U.S., as their modest recovery combines with even slower recovery in employment growth. However, several major economies, including France, Germany, Italy, Spain and the UK, are projected to experience much weaker productivity growth in 2016 as labor markets gain traction with accompanying output growth, reducing the opportunity to afford wage increases.  

The slowdown in China’s economy is almost entirely reflected in weaker productivity growth, as employment growth is already quite sluggish in a highly overinvested economy. However, modest productivity gains are possible in 2016, as companies slow additional hiring even further. The Conference Board projects China productivity growth to be 3.6 percent in 2016, compared to 3.3 percent in 2015 and 5.2 percent in 2014.

Despite weakness among mature economies, the global productivity slowdown is driven primarily by emerging markets, as weaker output growth, especially in economies highly dependent on lower-priced natural resources and commodities, has not translated into reduced employment growth. Any improvements in productivity growth will come primarily from resource-rich economies, such as Russia, Brazil, the Middle East and sub-Saharan Africa, if prices of natural resources and commodities continue to hold at current levels. Productivity growth among emerging markets and developing economies was 1.7 percent in 2015, down from 3.0 percent in 2014, but is projected to be 2.2 percent in 2016.