2/18  … and high geopolitical uncertainty  The contraction in world trade, meanwhile, appears to have intensified, against a background of persistent uncertainty surrounding US and Chinese trade policy and intensifying geopolitical risks. Although the deterioration in activity has been particularly intense in manufacturing, the slowdown in recent months in the global services output PMI, which remains in expansionary territory, is indicative of an increased risk of a steeper slowdown in global activity. Given its degree of openness, and the confluence of certain idiosyncratic elements, the euro area economy has been affected more than most by these international trade developments. Specifically, the euro area slowed significantly from the beginning of 2018, mainly due to the sharp moderation in exports. As a result, GDP grew at an average rate of 1.9% last year, down 0.7 pp from 2017, and year-on-year growth since end-2018 has fallen to around 1%. On the latest information available, euro area GDP growth was only 0.2% quarter-on-quarter in Q2, down from 0.4% in Q1, weighed down by weak exports and slack investment. By contrast, private consumption continued to grow, driven by the relative relatively robust labour market. On the supply side, industrial activity contracted in this period, while services behaved more positively. By country, the decline in activity in the German economy and the stagnation in Italy were notable. Moreover, the indicators available suggest that euro area economic activity remained weak in Q3. Thus, the trade and industrial activity indicators signalled continuation of the deterioration.
Having said that, while these gains have so far been based mainly on the moderation of labour and financial costs, in the future they will have to come increasingly from genuine increases in productivity. Long-term growth of the Spanish economy: the challenge of productivity The productivity challenge  The timid gains in productivity seen in the past recession and subsequent recovery proved to be insufficient to close the gap separating us from the core European countries. The limited headway in productivity by the Spanish economy should be a cause for great concern, since productivity gains are the only mechanism which can generate sustained, stable growth of per capita income in the long term. The consensus in this respect in economic circles is practically unanimous, and the repute of the studies in this area is attested to by the Nobel prizes in economics awarded to Robert Solow and Paul Romer in 1987 and 2018, respectively, for their contributions in the fields of productivity and longterm economic growth. A few figures will suffice to illustrate how improvements in a community’s standard of living over the long term depend almost entirely on productivity gains. Thus, for example, 80% of the increase in US per capita income since 1948 can be attributed to the growth of total factor productivity (TFP).2 In other words, increases in TFP of around 2% per year have allowed the average US citizen to enjoy inflation-adjusted annual income which in 2015 was about $ 30,000 higher than in 1948.