The rumblings of a productivity boom are echoing through the United States economy and may now be spreading beyond its borders. Long associated with efficiency, flexibility and innovation, the U.S. economy has historically led technological advances. Artificial intelligence is widely expected to accelerate this trend. However, early indicators suggest that some of these gains may be appearing elsewhere too.
Recent purchasing managers’ index data point to a strong start to the year for Britain. Figures released on Friday showed that business activity gained momentum, supported by solid demand at home and overseas. As a result, output expanded at its fastest pace since April 2024.
At the same time, firms reported a notable fall in employment. Job losses accelerated compared with December, and Britain’s PMI employment sub indexes have remained below the level that separates expansion from contraction since late 2024. This combination suggests that companies are producing more goods and services with fewer hours worked, which fits the textbook definition of productivity growth.
Early signals from Europe
Germany’s latest PMI readings paint a similar, though less clear, picture. Output in January reached a three month high. Meanwhile, employment declined at the sharpest rate since November 2009, excluding pandemic related distortions. Together, these figures point to rising output alongside falling labour demand.
PMI data do not always align neatly with official economic and employment statistics. For that reason, analysts caution against drawing firm conclusions from a single month. Even so, the emerging pattern has attracted attention.
Economist Allan Monks of JP Morgan notes that the ratio of output to employment in the UK, a rough proxy for productivity, stands at its highest level since August 2013 when pandemic distortions are excluded. Meanwhile, Bruna Skarica of Morgan Stanley argues that resilient growth combined with weak labour demand deserves closer scrutiny, even if some scepticism around PMI data is justified.
AI driven optimism and global gaps
Much of the optimism centres on the rapid adoption of AI and related technologies. Firms appear willing to invest heavily in the expectation that AI will boost efficiency, innovation and cost control. Whether this revolution allows other regions to close the productivity gap with the United States remains uncertain.
In China, prospects appear stronger. Productivity gains are already evident in sectors such as autos, steel and high value manufacturing. Economists at Goldman Sachs believe computing capacity in China is beginning to overtake that of the United States and could almost double within five years.
Europe, by contrast, continues to struggle with low productivity growth. Analysts often cite limited technological innovation, heavy regulation, high public debt and weak private investment. Goldman Sachs estimates that AI will add only around 0.05 percentage points to European growth in the near term, rising to about 0.2 points per year after 2030. That remains well below the 0.4 point annual boost expected for the United States.
Productivity and policy implications
In December, Federal Reserve Chair Jerome Powell suggested that stronger productivity growth could help tame inflation while allowing a supportive monetary stance. Faster productivity tends to be disinflationary, which may reduce the need for sharp interest rate changes if gains spread globally.
However, higher productivity also raises concerns about employment. If AI enables economies to grow with fewer workers, maintaining full employment could become harder. Powell may return to this issue when the Federal Reserve meets this week.
Productivity data are notoriously difficult to measure, and flawed underlying statistics can distort conclusions. Nevertheless, trillions of dollars in global AI related investment are expected in coming years. Investors are betting that this spending will deliver lasting gains. Earnings releases this week from major U.S. technology firms including Meta, Microsoft and Apple may offer further clues.
It remains too early to declare a global productivity revival. Still, for the first time since the AI investment surge began, tentative signs suggest it could yet materialise.
with inputs from Reuters
