The dismal performance of Greece, Spain, Portugal, Ireland and Italy is no surprise. All boosted wages to uncompetitive levels prior to the financial crisis whilst bathed in the warm glow of the early years of the eurozone, but they are now paying the price. The UK has also been dismal, although there have been some signs of life in real wages in recent times. Australia is suffering from the end of the China-induced mining boom and the associated collapse in capital investment. Japan has had poor productivity growth for years and our research indicates real wages have been declining since the mid-1990s.
The Central and Eastern European countries with relatively attractive rates of productivity growth are playing catch-up. The OECD recently commented: “…countries that have been able to increase their export-to-GDP ratio over time have also improved their labour productivity over the same period…participation in global value chains (GVCs) has contributed to the catch-up process.”
The OECD made an interesting comment in relation to the US, Canada and the UK: “…the decline [in productivity growth] since the end of the 1990s marked a reversal of growth that coincided with the IT revolution.”
In our judgement there is no near-term catalyst likely to encourage long-term capital investment and thence an improvement in productivity growth. The world appears locked into low or negative interest rates and probably further bouts of quantitative easing. It may stimulate financial assets but do little for the so-called real economy. This leads to ever-growing levels of wealth inequality – and even more social unrest.