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The first estimates of eurozone activity figures for the third quarter have been published, showing a contraction in activity (GDP) of 0.1% and an increase in employment of 0.3%. If we make the plausible assumption that the number of hours worked per person was stable, this means that productivity fell by 0.4% over the quarter.
After the sharp rise in productivity in Q2 2020, it had stabilized for two years, but has been falling more sharply since mid-2022. Compared with the last quarter of 2019, the cumulative increase is now just 0.8%.
Productivity fell by 0.9% between Q2 2022 and Q2 2023: breaking down this figure, we see that 1.0% of this drop was due to the fall in productivity in each sector, while the reallocation of working hours absorbed part of this shock. The problem is therefore one of productivity rather than a change in the sectoral structure of the economy.
With inflation decelerating, revenue growth will be lower and companies could compensate for the fall in productivity by adjusting their workforce. In the longer term, this phenomenon is also a problem, as productivity is a driver of potential growth, particularly in a context where the working-age population is diminishing in Europe.
Written on November 17, 2023. This is not an investment advice. Opinions subject to change.
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