europe - Economist.com Page 1 of 6 Europe v America Mirror,...

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Europe v America Mirror, mirror on the wall Jun 17th 2004 From The Economist print edition America is widely admired as the beauty queen of the economic world. But the euro area's figures are more shapely than its reputation suggests AS AMERICA'S economy has bounced back, the economies of the euro area still seem to be crawling along. This perception has reinforced pervasive gloom about continental Europe's economic future. A great deal has been written about America's superior performance relative to the euro area. But wait a minute: the widely held belief that the euro area economies have persistently lagged America's is simply not supported by the facts. America's GDP surged by 5% in the year to the first quarter, while the euro area grew by only 1.3%. Europe's GDP growth has consistently fallen behind America's over the past decade: in the ten years to 2003 America's annual growth averaged 3.3%, compared with 2.1% in the euro area. Yet GDP figures exaggerate America's relative performance, because its population is growing much faster. GDP per person (the single best measure of economic performance) grew at an average annual rate of 2.1% in America, against 1.8% in the euro area—a far more modest gap. Furthermore, all of that underperformance can be explained by a single country, Germany, whose economy has struggled since German reunification in 1990. Strip out Germany, and the euro area's annual growth in GDP per person rises to 2.1%, exactly the same as America's. Germany does represent around one- third of euro-area GDP, but still the fact is that economic statistics for the 11 countries that make up the other two- thirds look surprisingly like America's (see chart 1). (Were Britain part of the euro area, this effect would be even more striking.) The most popular myth is that America's labour-productivity Page 1 of 6 Economist.com 7/24/2004 http://www.economist.com/PrinterFriendly.cfm?Story_ID=2765877
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growth has outstripped that in the euro area by a wide margin. America's productivity has indeed quickened in recent years, but the difference between productivity growth in America and the euro area is exaggerated by misleading, incomparable figures. In America the most commonly used measure of productivity is output per hour in the non-farm business sector. This grew by an annual average of 2.6% over the ten years to 2003. For the euro area, the European Central Bank publishes figures for GDP per worker for the whole economy. This shows a growth rate for the period of only 1.5%. But unlike the American numbers, this figure includes the public sector, where productivity growth is always slower, and it does not adjust for the decline in average hours worked. Using instead GDP per hour worked across the whole economy,
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europe - Economist.com Page 1 of 6 Europe v America Mirror,...

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