Europe’s pandemic productivity growth surge may wane: ECB study

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FILE PHOTO: A steel worker of Germany's industrial conglomerate ThyssenKrupp AG stands a mid of emitting sparks of raw iron from a blast furnace at Germany's largest steel factory in Duisburg

FRANKFURT – Euro zone labour productivity growth surged at the onset of the pandemic as firms rushed to adapt digital technologies but much of the gains are at risk of erosion, a European Central Bank study showed on Wednesday.

Europe’s productivity growth has been anaemic for years, keeping a lid on overall economic expansion and some economists hoped that a rapid adaption of digital solutions could be the COVID-19 pandemic’s silver lining.

Data so far suggest that this is happening as labour productivity is now more than 2% higher than in the final quarter of 2019, even if it has declined somewhat since the onset of the recovery, the ECB said in an Economic Bulletin article.

“The pandemic has accelerated the trend for digitalisation that had already started well before the crisis,” the ECB said.

“Although part of the shift to remote working might reverse over time, some is likely top persist … and could potentially open the door to substantial gains in terms of productivity and employee well-being,” the ECB added.

But the shift is not without risk.

Unlike others crises, the pandemic has not yet led to mass exit of low productivity firms as government guarantees kept companies afloat, halting what is normally a “creative destruction” process, the ECB added.

The redistribution of labour to more productive sectors could also reverse.

As containment measure forced businesses to halt many face-to-face interactions, usually low productivity tasks, activity was redistributed, accounting for 30% to 40% of the labour productivity growth, the ECB said.

“It is not clear to what extent the contribution of sector reallocation will persist over time – the impact already seems to be declining in the second quarter of 2021, and this may accelerate as containment measures are gradually removed,” the ECB added.

Lockdowns may have also interrupted education and training, while the current supply chain bottlenecks could force firms to find new suppliers and supply routes, impacting their productivity.

(Reporting by Balazs Koranyi; Editing by Toby Chopra)