Moody’s decries sluggish productivity growth

The persistent decline in labour-productivity growth, one of the key drivers of overall economic performance, corporate profitability and government tax bases, remains among the most significant risks to the outlook for global growth, Moody's Investors Service says in a new report.
Moody's expects global growth in gross domestic product to accelerate to 3.1 per cent this year and 3.5 per cent in 2018 from 2.7 per cent in 2016, as most advanced economies register stable growth and some emerging-market economies regain momentum after several years of deceleration.
"Despite the cyclical uptick, we expect global growth to remain significantly below pre-crisis levels in the near term, driven by slower growth in both employment and labour productivity," said Elena Duggar, an associate managing director at Moody's.
"While we expect productivity growth to rebound somewhat this year and next, there will be a notable impact on growth if it fails to improve.” 
For example, should productivity growth remain at its 2016 pace of 1.2 per cent or even at its average pace of 1.7 per cent over 2011-2015, global GDP growth in 2018 could be as low as 2.5 or 3 per cent respectively, compared with Moody's current expectation of 3.5 per cent.
Productivity growth has been slowing for a number of years, and in particular after the US-led financial crisis in 2008. This trend is being driven by a combination of factors, including weak investment in the aftermath of the crisis due to the constrained availability of credit. 
A high degree of business pessimism and elevated economic and policy uncertainty have also contributed to the decline, partly by tilting investment away from higher-risk higher-return projects, which are the drivers of rising productivity growth. 
Long-term trends such as population ageing and the slowing growth in human capital and education are also behind the decline in productivity growth, as well as slower technology diffusion, lower dynamism of the economy, reduced technological spillovers due to the falling pace of globalisation, and exhausted gains from sectoral reallocation in many countries.