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Wales’ Productivity Levels Preventing it from Realising its Full Potential

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PwC’s latest UK Economic Outlook projects that growth in Wales will be among the lowest of all the UK regions in 2020 – with a productivity shortfall that continues to hinder its prospects.

Overall UK economic growth is likely to remain subdued, growing by around 1.2% in 2019 and 1% in 2020 – significantly below its long-term average rate of around 2%.

PwC forecasts that all 12 UK regions will see modest if positive growth in 2019 and 2020. A projected growth rate of 0.8% in 2020 ranks Wales at the foot of the table, along with Northern Ireland and the North East – below the UK average – with Wales expected growth to be 1% in 2019.

But while its growth rate is sluggish, the bigger issue for Wales is its lower productivity level. Regional productivity gaps are large, with output per job in London (£77,125) around 40% above the UK average (£54,330), with Wales  around 18% below the national average (£44,780). This figure places Wales last among the 12 UK regions.

John-Paul Barker, regional leader for PwC in the West and Wales, commented:

“In terms of growth, Wales suffers from having a greater reliance on manufacturing than many regions. This has been adversely affected by global trade tensions and the slowdown in Eurozone growth. But the productivity issue faced by the country is a longer-term challenge.

“Wales needs the combined power of local and central government plus business to deliver more investment in skills and infrastructure. The upside of tackling this productivity problem is huge: if those areas performing below the UK average can close 50% of the gap in productivity performance with the UK median, it could boost UK GVA by around £83 billion, equivalent to nearly 4% of GDP. Wales would see the second-largest percentage increase of 10.7%.”

The report suggests a number of strategies that could be employed to help boost productivity across the regions. Notably, businesses could promote workplace training and upskilling, a recommendation that is reinforced by PwC’s recent global skills survey, which showed that the desire of UK employees to learn new skills is not being met by employers. In addition, investment in local infrastructure could boost connectivity (and therefore productivity).

John Hawksworth, chief economist at PwC commented:

“Places that are better connected physically and have access to skilled workers tend to have higher productivity levels. We find, for example, that a 1% increase in skills is associated with a 2% increase in productivity in a local area.”