U.S. and European productivity growth was relatively slow in 2006, according to The Conference Board's annual analysis of global productivity trends, raising concerns about the long-term effects of information and communication technology (ICT) as a continued impetus for productivity growth. U.S. labor productivity growth in 2006 was the lowest in more than a decade and, despite a strong business cycle, the enlarged European Union saw modest productivity gains of only 1.5% last year.



According to Dr. Bart van Ark, Director of International Economic Research at The Conference Board: "Over the past decade, information and communication technology has been a key driver of global productivity growth, but with these latest numbers one begins to wonder whether ICT's contribution has peaked. The significant fall in U.S. productivity growth is unlikely to be purely cyclical, and the modest European revival of productivity also points to the limited impact of technological change and patchy liberalization of product and labor markets in many countries."

However, according to the report, the "lull" in productivity could also be due to a transition phase to a second wave of ICT-driven productivity growth still to come.

Gail Fosler, Executive Vice President and Chief Economist of The Conference Board, said: "Today's business models have reached a certain level of technology saturation, and incentives for creating a second wave of applications are weak. But there are many industries, in particular in services, in which the potential for more productive technology use seems large. Future productivity gains may be waiting for a new generation of business applications."

As in other years, the report also presents the productivity and labor input estimates for individual countries.

U.S. labor productivity slowed for the third consecutive year in 2006 and was well below that of the other two largest advanced economies in the world, Germany and Japan (2.5% in 2006). The latest productivity estimates, running up to the third quarter 2006, suggest that most of the U.S. slowdown comes from service sectors.

Within Europe, Germany displayed a significant acceleration in productivity growth (2% in 2006 compared to 1.3% in 2005) even though most of its economic recovery is likely to be cyclical. External factors in the form of improved export performance account for a substantial part of Germany's productivity recovery while the domestic sector, particular consumer expenditure, still remains weak.

Nordic countries, in particular Finland (3.7%) and Sweden (2.8%), showed productivity growth well above the European average. In contrast, the productivity record of most Mediterranean countries, particularly Italy, Portugal and Spain, remains consistently weak at 0.1%, 0.3% and -0.5% respectively.

Other significant findings in the report include:

Productivity recovery in Japan is strong for the third consecutive year, reaching 2.5% in 2006. Most of the recovery in Japan is related to a better export performance of the manufacturing sector. However service productivity growth remains a concern.

Productivity growth in developing economies was strong, with India and China growing at around 7% and 9-10% respectively in the past two years. However, there are questions about how sustainable this is, given that recent productivity gains are in part due to structural changes in transforming economies.

The UK continues to enjoy steady growth in labor productivity, 1.1% in 2005 growing to 1.7% in 2006, but the UK remains outside the top 10 most productive economies.

Greece is the only country in the "old" EU-15 that continues to catch-up on the rest of Europe (productivity growth rate 2.5%), but productivity growth in Ireland (0.9%) has slowed down to well below the European average.

There was a significant recovery in productivity growth rates in the EU's new member states ("EU12") rising from 2.5% in 2005 to 3.9% on average last year.