[17] Given the weak outlook for euro area growth, however, tackling the productivity challenge can no longer be delayed. Broadly speaking, productivity growth comes through two channels. The first is within-firm growth, which depends on the generation and diffusion of new innovations and management techniques.
The second is across-firm growth, which depends on the movement of resources from the least to the most productive firms. The euro area’s comparatively weak performance derives from both. Indicators on research and development suggest that the euro area is lagging behind in terms of innovative capacity, and particularly in the services sector.