Page 5 - bne IntelliNews monthly magazine November 2024

bne November 2024 Companies & Markets I 5
The Covid pandemic resulted in productivity losses across the EU in 2020, with the most severe declines in Spain and France, while the US economy surprisingly continued to maintain productivity growth throughout the pandemic. Except for France, TFP levels have recovered to their pre-pandemic levels.
In terms of capital growth, the 2009-2010 European debt and global financial crisis resulted in significant declines in capital spending, particularly in Spain. Weaker spending led to diminished capital accumulation during 2012- 2019, contributing much less to potential growth in both the EU and US economies, according to IFF.
The Draghi report proposes increasing annual capital spending by €800bn, or 5% of GDP, which could raise EU real GDP growth by 0.4 percentage points per year. However, as the report suggests, the effectiveness of this additional investment hinges on how well it is directed towards high- value sectors.
“Where and how this capital is allocated could make a substantial difference,” Estevão notes, particularly in fostering technological and managerial innovation.
Labour force and immigration policy
The report also stresses the critical role of labour force dynamics in Europe’s economic future. With an ageing population in the EU and a significant decline in the pool of inactive workers post-Covid, labour force growth is likely to moderate in the coming years, says IFF. As a result, labour- intensive sectors, such as services, may be forced to raise wages to encourage workers to increase their hours, and
so push up inflation again especially if stagnant labour productivity does not pick up.
“In the post-pandemic period, working-age population growth accelerated in the EU, including in Germany, with particularly robust momentum in Spain. This unusual labour force growth appears to have been driven largely by inactive senior workers returning to the labour market and strong immigration,” says Estevão. “However, according to the European Commission’s estimates, trend de- clines in average hours worked per employee have continued to make negative contributions to potential growth rates in Germany, Spain and France since 2019. After employment and hours worked per employee are taken into account, total hours worked have boosted potential growth everywhere since 2019.”
Labour force growth in Europe is expected to moderate in the coming years thanks to a demographic crisis and low fertility rates; there is nowhere in Europe where fertility is above the 2.1 births per woman replacement rate. That has raised concerns about the sustainability of any potential long-term output growth.
“This highlights the importance of a well-thought immigration policy to buoy Europe’s potential growth,” Estevão says, noting that immigration could offset the expected decline in the working-age population and support productivity in labour-intensive sectors.
Looking ahead, addressing Europe’s productivity challenge will require more than capital investment. Structural reforms to boost TFP growth, coupled with policies to attract and integrate skilled workers, are seen as vital to sustaining the EU’s competitiveness on the global stage.
"Stronger incentives for technological and managerial innovation will be crucial to reversing this trend," Estevão concludes.
Hungarian government to unveil economic action plan to boost faltering growth
Tamas Csonka in Budapest
The Hungarian government is set to unveil a compre- hensive economic action plan, with a focus on ensur- ing affordable housing, rapid wage convergence, and supporting SMEs, National Economy Minister Marton Nagy said on October 11.
The initiative will include over 20 sub-programmes, details of which will be released in the coming days, he added.
Prime Minister Viktor Orban in his regular Friday interview gave a preview of the programme that is designed to give a new impetus to the Hungarian economy, which is rebounding slower than expected from last year’s recession.
Beside the need to kickstart the economy, the government
is faced with the suspension of EU funds and is also under pressure to bring its deficit below the Maastrich level. This target has been pushed back by one year to 2026, an election year, where over the past 20 years pre-election spending
has traditionally resulted in bigger budget overshoots. The government poured several billions of euros into the economy before the 2022 election, which fuelled record inflation a year later, forcing high interest rates, which was a major contributor to the 0.9% GDP contraction in 2023.
Given Hungary’s strained fiscal position, a repeat of the 2022 election spending spree is unlikely. The new measures are
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