Increased productivity in Europe during pandemic could lose steam, ECB says

The growth of labor productivity in the euro zone jumped at the beginning of the pandemic as companies rushed to adapt to digital technologies, but most of the gains are at risk of corrosion, showed this Wednesday (10) a study by European central bank.

Productivity growth in Europe has been anemic for years, containing the general economic expansion, and some economists hoped that the rapid adaptation to digital solutions due to the Covid-19 pandemic could continue.

Data so far suggest this is happening as productivity is now more than 2% above that seen in the last quarter of 2019, even though it has retreated somewhat since the recovery began, the ECB said in an article in the Economic Bulletin.

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

“While some of the shift to teleworking could be reversed over time, some should persist … and could potentially open the door to substantial gains in terms of productivity and employee well-being,” the ECB added.

But the change will not be risk-free.

Unlike other crises, the pandemic has yet to lead to a mass closure of low-productivity companies as government guarantees keep the companies alive, interrupting what is normally a process of “creative destruction”, the ECB added.

The redistribution of the workforce to more productive sectors could also be reversed.

As the containment measures forced companies to end many face-to-face interactions, typically low-productivity tasks, activity was redistributed, accounting for 30% to 40% of productivity growth, the ECB said.