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– Jun 11th, 2024

Q1, 2024: Labour productivity in the Euro Area is bottoming out as economic activity improves

Productivity Measurement Analysis series – UK, Q1 2024 by Klaas de Vries

According to figures released on June 6 2024, labour productivity in the Euro Area, defined as real GDP per hour worked, increased modestly in the first quarter of 2024 compared to the previous quarter.[1] On a year-over-year basis, it looks like the labour productivity decline is bottoming out—at least for GDP per hour worked – with a neutral reading after six consecutive quarters of negative readings.

Table 1. Euro Area (excl. Ireland)

(1) Q1/2024 q/q (2) Q1/2024 y /y (3) vs Q4 2019
Real GDP (at basic prices) 0.4% 0.7% 3.1%
Persons employed 0.3% 1.0% 4.0%
Total hours worked 0.3% 0.7% 2.7%
Labour productivity (per worker) 0.1% -0.3% -0.8%
Labour productivity (per hour worked) 0.1% 0.0% 0.5%

The Euro Area economy turned the corner on economic activity in the first quarter of 2024…

After very weak growth in 2023, the start of 2024 brought better news in terms of economic activity. Inflation has moderated while pay growth is still elevated, and the resultant real income gains are boosting demand. This has helped the Euro Area to finally recover in earnest from the shocks of the previous two years. Real GDP growth ticked up in the first quarter of 2024 to 0.4%. That was an improvement from the 0.1% growth registered in the last couple of quarters.

Furthermore, growth was relatively balanced across the economies sharing the Euro, with most seeing increases. Growth was particularly strong in Spain (0.7%) and Portugal (1.3%), while Germany returned to growth after weakness throughout 2023. The Netherlands was somewhat of an outlier among the larger economies, with a contraction of 0.3%. This was largely on the back of decreases in manufacturing activity, particularly related to car manufacturing and (chip) machinery fabrication.

…while the labour market remains a source of strength

However, the increase in economic activity across the common currency bloc was largely driven by increases in employment, as both the number of employed and the total hours worked increased by 0.3%. Over half a million workers were added to the payroll in the first quarter compared to the previous quarter. This was a bit up from the pace over the previous quarters, but right around the average increases seen in the years prior to the pandemic. The job gains were concentrated in the wholesale and retail trade, transport, accommodation and food sectors. This dynamic hampered economy-wide productivity growth as most firms in these sectors have productivity levels below the economy-wide average.

[1] Real GDP at basic prices is used as the numerator, sometimes also referred to as Real Gross Value Added; The Euro Area aggregate referred to in this blog excludes Ireland due to volatility in the Irish GDP data which are unrelated to productivity measurements.