Productivity growth matters for material living standards but has dropped to historic lows in advanced economies. The McKinsey Global Institute examined why productivity growth has been so weak in Europe and the US and looked at the potential for its growth to accelerate, especially at a time when automation and digital technologies are playing a growing role in the economy.
The research, published in February 2018, reveals that half the recent slowdown in productivity growth is attributable to the waning of a 1990s IT-driven productivity boom, while the other half is attributable to financial crisis aftereffects, particularly weak demand and uncertainty. For the future, the report finds that digitization contains the promise of significant productivity boosting opportunities, but the benefits have not yet materialized at scale. This is due to adoption barriers and lag effects as well as transition costs. The research identifies productivity-boosting opportunities that could be at least 2 percent per year over the next ten years, with 60 percent coming from digital opportunities. How strong the recovery is, however, will depend on the ability of companies and policy makers to unlock the benefits of digitization and promote sustained demand growth.
