Global Productivity Growth Set to Disappoint Again in 2023

After Pandemic Surge, Labor Productivity Remains Weak for Third Straight Year

NEW YORK, May 17, 2023 /PRNewswire/ -- After spiking at the onset of the pandemic in 2020, stagnant productivity growth has become a stubborn feature of the world economy in the years since.

According to The Conference Board Global Productivity Brief 2023, GDP per hour worked—a standard definition of labor productivity—is set to rise just +1.2% worldwide in 2023. That's a welcome improvement from 2022, which saw zero growth, but a far cry from the +3.8% surge recorded in 2020 or the +2.6% annual productivity growth averaged over the 2011-2019 span.    

"While modest labor productivity growth is expected to return in 2023, the trend remains disappointing—posing serious long-term headwinds for the world economy," said Klaas de Vries, Senior Economist at The Conference Board. "Today's historically tight labor markets preview a future where aging demographics will increasingly constrain the growth of the labor supply. Without a sustained rise in labor productivity, economies will face a hard limit to growth that impacts all businesses, even the most productive, in the decade ahead. Given this dynamic, firms will look to digital transformation and automation to help increase productivity."   

Global labor productivity will disappoint for the third straight year in 2023—reflecting the reversal of 2020's pandemic forces as well as new economic shocks.

• Global productivity surged to a 40-year high during the 2020 COVID-19 recession, as measures adopted to halt the spread of the virus disproportionately shut down service-sector activities. These impacted sectors tend to have below average labor productivity levels, driving up productivity across the economy as a whole.
• These temporary effects quickly reversed in 2021 and 2022, which saw less productive, labor-intensive service activities reopen. As a result, while global GDP rebounded strongly—rising +6.3% in 2021 and +3.2% in 2022—the vast proportion of this economic expansion was attributable to a surge in labor inputs (hours worked) rather than improved productivity.
• In 2023, GDP per hour worked is expected to rebound modestly to +1.2% from 0.0% last year. Combined with a +1.1% increase in total hours worked, this will result in global GDP growth of just +2.3%. Apart from the "mechanical" effects of reopening, additional shocks—including supply chain disruptions, high inflation and interest rates, and the war in Ukraine—are likely having a dampening effect on productivity.
• Labor productivity growth is expected to improve to just below +2% per annum over the next decade. Positive drivers include the ongoing excitement around breakthroughs like mRNA vaccines and generative AI, and the focus firms are placing on accelerating the overall pace of digital transformation. However, much depends on how quickly and effectively these technologies are adopted and diffused across the economy—a core reason why their impact and the future outlook for productivity remain highly uncertain.

Labor productivity growth in mature economies has been weak, with the US set to see productivity decline substantially for the second consecutive year. 

• Labor productivity growth in mature economies declined marginally (−0.1%) in 2022 and is forecast to rebound only modestly to +0.4% in 2023. That's well below the already weak trend of +1.0% average productivity growth during the 2011–2019 period.
• Much of the weakness in 2022 and 2023 is concentrated in economies with booming labor demand, led by the United States and France.
• In the US, GDP per hour worked is set to fall −0.7% in 2023, after declining −1.1% last year. Nevertheless, US labor productivity remains about 4% above prepandemic (i.e., 2019) levels, due to extremely fast growth in 2020. In this respect, the US has outperformed key economies in Europe—though the Euro Area is expected to see a smaller productivity contraction of just −0.2% in 2023.
• Mature economies poised for positive productivity growth in 2023 include Japan, Australia, Canada, and South Korea—markets where total hours worked are set to decline due to cooling labor demand.

Emerging economies will see labor productivity pick up in 2023, particularly in Asia.

• Over the past decade, a disproportionate portion of global labor productivity growth has been driven by emerging economies in Asia. On average, over 2011–2019, India and China increased labor productivity by +6.3% and +7.6%, respectively.
• After contracting for two straight years, India will see strong productivity growth return in 2023, with GDP per hour worked set to climb +3.3%. Productivity in China will trend down somewhat as it emerges from zero COVID lockdowns—from 8.1% in 2021 and 6.7% in 2022 to a still-strong +4.8% in 2023.
• Across all emerging and developing economies, GDP per hour worked will climb a much more modest +2.3% in 2023. This reflects the reality that catch-up potential does not always translate into high productivity growth rates. In fact, developing economies like Brazil, Mexico, and South Africa are all seeing relatively stagnant productivity growth closer to that of mature economies than China or India.

About The Conference Board

The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. ConferenceBoard.org

For complete analysis, charts, and data tables, visit The Conference Board Total Economy Database™, Productivity results (2022 update): https://www.conference-board.org/data/economydatabase

SOURCE The Conference Board

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