Productivity to Rebound in 2024 as Economy Grows More Than Employment

“The recovery in growth potential in the first quarter of 2024, driven by productivity gains, is good news, especially as it is coupled with rising employment in the labour force, which is helping to reduce unemployment, albeit at a lower rate than in previous quarters. “We will have to look at the data for the coming quarters to see whether this favorable growth pattern takes hold,” the report said, showing improvements in labor, capital and total factor productivity.

labor productivitymeasured on the basis of production/added value created in hours worked, showed a positive trend in the first quarter of 2024, increasing by 1.3%. In this case, the improvement is due to the fact that the Spanish economy performed better than the employment indicators; Gross value added increased by 2.59%, while hours worked increased by 1.29%.

Juan Fernández de Guevara, co-author of the report, professor at the University of Valencia and researcher at IVIE, points out that “if GDP grows rapidly and the number of hours worked grows even faster, productivity declines. If GDP grows and working hours are moderate, productivity increases. This is what happened here, leaving behind the poor results of the second quarter of last year.

In the first quarter of 2023, according to the BBVA and IVIE Foundation, labor productivity growth was 2.18%. But in this case, the data has been distorted since then Spain As Fernandez de Guevara emphasizes, it still maintained the “inertia of acceleration after Covid”. “In the first quarter, the economy grew by 4.3%. With such growth, productivity can easily grow even more. The current situation, according to the expert, is a “more normalized moment”.

For its part, capital productivity increased by 1.47% in the first quarter of 2024, compared to growth of 1.12% in the fourth quarter of 2023. Total factor productivity (TFP) increased by 1.57%, compared to 0.43% in the immediately preceding period.

In addition, Fernandez de Guevara comments that in relation to productivity Spain It was an international exception because “it was countercyclical, improving during periods of crisis and worsening during periods of economic growth.” Now it is changing and becoming procyclical, growing in step with the expansion of the economy. In fact, as far as he can remember, after the great financial crisis, he had already begun to understand that productivity contributes to economic growth. This situation is aimed at consolidation, and one can see changes.

However, looking ahead, he notes that “there is a lot of uncertainty right now. The key is whether these uncertainties will materialize into a slowdown in the economy and a fall in employment, which is not evident from what we have seen. If this negative scenario is confirmed, productivity will follow this pattern. But if the economy continues to grow, it is possible that this trend will continue,” he concludes.

By sector, productivity behaviour varies greatly, with some services sectors, such as financial activities, standing out. “TFP growth in the first quarter of 2024 was particularly strong in the primary sector, where year-on-year growth was 4.84%, and in manufacturing (3.92%), more moderate in services (1.24%) and construction (1.29%), and negative in energy (-2.48%).”

In the case of services, they “show ambivalent behavior. While in some of them productivity increases more than the average for the economy (financial and insurance activities – 7.79%; public administration, education and health – 3.62%; artistic, entertainment and other services – 5.54%), in others it decreases (information and communication – -0.47%; real estate activities – -0.80%; professional, scientific, technical and other activities – -2.85%),” the report says.