Slowing productivity 'leaving the world vulnerable to slump'

Paramilitary police officers standing guard outside the venue of the World Economic Forum meeting (WEF) in Dalian, China on Sept 8, 2015.
Paramilitary police officers standing guard outside the venue of the World Economic Forum meeting (WEF) in Dalian, China on Sept 8, 2015. PHOTO: REUTERS

Flagging productivity is one of the main culprits accounting for low growth and persistently high unemployment in economies around the world, the World Economic Forum (WEF) said yesterday.

In its annual Global Competitiveness Report, the WEF said this "new normal" is damaging resilience and leaving the world vulnerable to another protracted economic slump.

Global growth is expected to come in at 3.3 per cent this year - its lowest rate since 2009 and one of the slowest since 2000, it noted. Unemployment, especially among youth, also remains elevated.

Long-term growth is expected to remain below the levels recorded in previous decades in most developed economies and in many emerging markets.

This situation is often referred to as the new normal.

Many possible explanations for this have been put forward, such as the ageing population in most advanced economies and some emerging countries, as well as declining capital investment.

But slowing productivity growth is undoubtedly part of the story, the WEF said.

In the last decade, productivity in most regions has grown more slowly than in the decade before.

This could be because technological inventions of the last decade, such as social networks and the sharing economy, have a more limited effect on productivity than the Internet revolution of the previous decade, and also create value not captured in national accounts - so do not show up in productivity data.

Other possible factors include barriers to knowledge diffusion that prevent smaller companies from assimilating knowledge from larger firms, and the slowdown in the growth of global trade.

In emerging markets and developing countries in particular, there is scope for raising productivity through structural reforms, the WEF said.

Singapore has also been struggling with raising labour productivity.

The Republic embarked on a restructuring drive in 2010, encouraging companies to use better technology while also weaning them off cheap sources of labour.

Despite these efforts, however, labour productivity growth remains stuck in reverse, with the overall figure in the first half of this year in negative territory.

Chia Yan Min

A version of this article appeared in the print edition of The Straits Times on September 30, 2015, with the headline 'Slowing productivity 'leaving the world vulnerable to slump''. Print Edition | Subscribe