Productivity Measurement Analysis series – Euro Area Q1 2026 by Klaas de Vries and Nathan McKeogh
According to figures released on June 5 of 2026, labor productivity in the Euro Area, defined as real gross value added per hour worked, increased by about 0,5 percent in the first quarter of 2026 compared with the previous quarter. Compared with the same quarter of last year, productivity increased by 0,6 percent.
This is a more positive reading than the unadjusted euro area aggregate suggests. [1][2] The difference is almost entirely due to the very large fall in Irish real gross value added in the first quarter. Irish GDP figures are notoriously volatile due to the activities of foreign-owned multinational enterprises, and this volatility can dominate the euro area aggregate even when it says little about underlying productivity developments in the currency bloc. For that reason, the euro area figures used in this blog adjust real gross value added for Ireland.
Table 1: Quarter 1 2026 for Euro Area (% change)
|
Quarter-on- quarter (%) |
Quarter-on- year ago (%) |
Quarter versus Q1 2019 (%) | |
| Real gross value added | 0,2 | 1,1 | 6,8 |
| Persons employed | 0,0 | 0,5 | 5,7 |
| Total hours worked | -0,3 | 0,5 | 4,8 |
| Labour productivity (per worker) | 0,2 | 0,6 | 1,1 |
| Labour productivity (per hour worked) | 0,5 | 0,6 | 2,0 |
The adjusted figures show that the euro area economy expanded modestly in the first quarter. Real gross value added rose by 0,2 percent compared with the previous quarter, while total hours worked fell by 0,3 percent. This combination pushed productivity per hour worked higher. Productivity per worker increased more modestly, as the number of employed persons was broadly unchanged.
The first interpretation of the release is therefore not that euro area productivity stalled, but that the recovery continued at a moderate pace. The year-over-year increase of 0,6 percent is not spectacular, but it is clearly better than the negative readings seen during much of 2023 and the stagnation seen in several quarters of 2024.
At the same time, the figures should not be overstated. Since the beginning of 2023, labour productivity per hour worked has increased by only about 1 percent in total. That remains a weak performance over a three-year period. The euro area has moved away from the productivity recession of 2023, but it has not yet returned to anything resembling a strong productivity trend.
Another important point is that part of the quarterly increase reflects lower hours worked. Total hours declined while employment was broadly unchanged, implying that average hours worked per employee fell again. This has been a recurring feature of the post-pandemic euro area labour market. Firms have generally continued to hold on to workers, while adjusting labour input more through hours than through headcount.
The need for an adjusted aggregate is particularly clear in this release. Irish real gross value added declined by more than 13 percent compared with the previous quarter, while Irish labour productivity per hour worked fell by more than 10 percent. These movements are far too large to be interpreted as normal cyclical productivity developments.
Because Ireland is part of the euro area aggregate, the unadjusted figures show a much weaker picture: euro area productivity per hour worked was broadly flat quarter-on-quarter and slightly negative year-on-year. But this is misleading for the euro area as a whole. The Irish effect is concentrated in output, not in persons employed or hours worked. Adjusting real gross value added therefore gives a cleaner signal of underlying productivity dynamics.
Figure 1: Output per hour worked for selected EU countries and the Euro Area aggregate [1] (Q1 2010 = 100), Data Sources: Eurostat, Ireland CSO, Own elaboration by TPI Productivity Lab
Among the larger economies, Spain again stands out positively. Real gross value added increased strongly in the first quarter, while total hours worked declined. As a result, Spanish productivity per hour worked increased by about 1 percent compared with the previous quarter. Spain remains one of the stronger post-pandemic performers in the euro area.
Germany also recorded a positive productivity reading, with productivity per hour worked up by 0,6 percent. However, this should be interpreted cautiously. German output growth was modest, and part of the productivity increase came from lower hours worked. The broader German picture remains one of weak output growth and only limited improvement since the pandemic.
France was broadly flat on a quarterly basis, although productivity was still clearly higher than a year earlier. Italy again showed little productivity momentum. Output increased, but hours worked rose by a similar amount, leaving productivity per hour worked essentially unchanged. The Netherlands recorded a modest quarterly increase and remained one of the stronger performers on a year-over-year basis.
The sectoral euro area data require the same caution as the aggregate figures. In the unadjusted data, manufacturing productivity appears to have fallen sharply in the first quarter. However, this reading is heavily distorted by the Irish figures. The volatility in Irish real gross value added is particularly visible in manufacturing, which means that the euro area manufacturing aggregate is not a very reliable guide to underlying developments in the main industrial economies.
Looking at the largest manufacturing hubs gives a less negative picture. Manufacturing productivity increased in both Germany and France in the first quarter, by around 1,4 percent and 0,7 percent respectively. Spain also recorded a positive quarterly reading. Italy was the main exception among the larger economies, with manufacturing productivity declining slightly. The Netherlands also saw a quarterly fall, although productivity was still higher than a year earlier.
This suggests that the first-quarter productivity improvement in the adjusted euro area aggregate was not accompanied by a broad-based manufacturing slump. Rather, the picture is mixed. Manufacturing remains under pressure in parts of the euro area, especially Italy, but the sharp fall visible in the unadjusted euro area sectoral data mostly reflects Irish volatility rather than a generalized deterioration across the major manufacturing economies. The service-sector picture is somewhat more supportive, with productivity gains in several market-service industries helping to underpin the adjusted aggregate increase.
Overall, the Q1 2026 release is more encouraging than it looks at first sight. Once Irish GDP volatility is stripped out, euro area labour productivity per hour worked increased by about 0,5 percent compared with the previous quarter and by 0,6 percent compared with the same quarter last year. That is a meaningful improvement compared with the productivity weakness of 2023 and 2024.
However, the recovery remains fragile. The level of productivity has increased only modestly over the last few years, and part of the latest gain reflects lower hours worked rather than a broad acceleration in output. The divergence across countries and sectors also remains substantial. Spain and parts of the service economy are providing support, while Italy continues to drag. Manufacturing is more mixed than the unadjusted euro area figures suggest, with positive readings in Germany and France offset by weaker developments elsewhere.
The euro area productivity recovery is real, but still shallow. Adjusting for Ireland makes the underlying picture clearer and more favourable, but it does not yet point to a sustained productivity revival.
References
[1] The Euro Area aggregate is based on data for Ireland that excludes sectors that are dominated by foreign-owned multinational enterprises. These data are used as they represent a more realistic (and less volatile) picture of the Irish economy. The growth rate of Euro Area productivity growth including the total gross value added data for Ireland is -0,2 percent on a year over year basis and 0,0 percent on a quarter over quarter basis.
[2] The official press release can be found here: https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-05062026-ap#estat-inpage-nav-heading-0 and https://ec.europa.eu/eurostat/web/products-eurostat-news/w/ddn-20260605-1.
