Prospects for growth in the Euro area

Kieran McQuinn and Karl Whelan ()

Open Access publications from School of Economics, University College Dublin

Abstract: We review the recent performance of the Euro area economy, focusing in detail on the separate roles played by labour input, capital input, and total factor productivity (TFP). After a long period of catching up with US levels of labour productivity, Euro area productivity growth has, since the mid-1990s, fallen significantly behind. We show that this recent divergence has accelerated since 2000, and that this is mainly due to the poor rate of Euro area TFP growth. Based on prevailing trends, we estimate that potential output growth in the Euro area currently may be running as low as 1.5 percent per year. In addition, if TFP growth stays at recent levels, the output growth rate will decline further due to weaker capital deepening. To consider future Euro area prospects for growth, we examine a set of alternative scenarios, each of which posits a potential increase in a determinant of output growth. One of these scenarios focuses on the potential effects of greater labour market deregulation.

Keywords: Economic development--European Union countries; Industrial productivity--European Union countries; Labor market--European Union countries (search for similar items in EconPapers)
Date: 2006-11
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Citations: View citations in EconPapers (1)

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http://hdl.handle.net/10197/217 Open Access version, 2006 (application/pdf)

Related works:
Journal Article: Prospects for Growth in the Euro Area (2008)
Working Paper: Prospects for Growth in the Euro Area (2006)
Working Paper: Prospects for Growth in the Euro Area (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:oapubs:10197/217

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