widening difference of aggregate labour
productivity developments between the
United States and the EU/euro area in the
second half of the 1990s is mainly explained
by stronger labour productivity performance
in the US wholesale and retail trade, in
financial intermediation and in high-
technology manufacturing sectors. However,
care should be taken when comparing EU/
euro area and US productivity data owing to
data measurement issues, such as quality
adjustments.
- Sectoral composition and changes therein
seem to have had only a limited impact on
shaping the business cycle fluctuations in
EU countries. Rather, decreased aggregate
output volatility has been driven by across-
the-board decreases of sectoral output
volatility. Nevertheless, the extent of the
output volatility decline has not been the
same in manufacturing and in services
sectors. Moreover, despite some changes in
sectoral composition between EU countries,
business cycles became increasingly
synchronised over the 1990s. In particular,
exposed sectors contributed to increased
business cycle synchronisation across
Member States.
- The recent enlargement of the EU could
entail an increase in the sectoral
heterogeneity given that the new Member
States are relatively more specialised in low-
technology industries. However their pattern
of specialisation is changing very quickly,
and at least some of the new Member States
have experienced strong convergence of
their productive structures to the EU
average.
Overall, sectoral specialisation and structural
adjustments are relevant for the long-term
growth potential of EU countries, affecting the
“speed limit” at which the economy can grow
without building up inflationary pressures. In
this regard, while changes in sectoral
specialisation in the EU over the past two
decades have only been limited, sectoral re-
allocations have contributed positively to
labour productivity developments.
Nevertheless, this positive contribution has
been less significant than in the United States
over the most recent period, indicating the need
to improve the capacity of EU economies to
adjust their productive structures. As far as
business cycle synchronisation is concerned,
given that the production structures of euro area
countries appear to be relatively similar and
have been fairly stable over time, misalignments
in the business cycles of euro area economies,
which could hinder the smooth conduct of the
single monetary policy, are not quantitatively
important. Indeed, over time, there has been a
convergence towards more similar business
cycle characteristics across euro area countries.
These results may be seen as reassuring from a
monetary policy point of view.
ECB
Occasional Paper No. 19
July 2004