why euro - area productivity growth has been lagging behind that of the usa. increasing competition is vital to improving productivity. enhanced productivity would reduce service prices, which would support domestic consumption and ultimately boost investment to meet the new demand. this would also lead to an increase in imports. all in all, productivity growth would raise euro area economic growth towards that of the other major economic regions and would also help to correct the us external deficit. - using its gem model, the imf has evaluated the impact of more intense competition on economic development. calculations show that enhanced competition in the goods, services and labour markets would have significant real - economy effects in the euro area. the impact would also be felt in the rest of the world economy. calculations made using the bank of finland's aino model have also produced similar results. over the long term, increased competition in the product markets would stimulate the growth of consumption and investment. * * * - turning to asia, several countries there have been running large current account surpluses. developments in asia resemble the strong reversal in finland's current account experienced in connection with the deep recession of the early 1990s. before the crisis, the finnish economy was characterised by abundant but relatively ineffective investment and, as a result, a large and fairly persistent current account deficit. following the crisis, capital usage became more effective and savings increased, and the current account moved substantially into the black. - the reversal of finland's current account can be attributed to several factors : - improved price competitiveness due to a depreciating currency and modest wage increases - more effective investment by companies and households - consolidation of public finances - investment abroad following the switchover to the euro ( pension funds ) - reduction of interest payments due to a shrinking debt - the major impact of nokia and its exceptionally strong profitability - what happened in many asian countries was similar. investment rates of the private sectors in particular declined after the crisis and have not returned to previous levels. as savings rates have remained stable or increased slightly, current accounts have moved into surplus. - countries with financial surpluses should also contribute to the equilibrating of the global economy. as in asian countries, the surpluses have also increased in the oil - producing countries. they have thus far used their surpluses prudently, but most of them have a great need to use resources to further their own development. - some asian countries are in a financial position where they could allow for higher consumption. this is particularly evident

erkki liikanen : towards more balanced growth - past experiences and current challenges speech by mr erkki liikanen, governor of the bank of finland, at a high - level seminar between the executives ’ meeting of east asia - pacific central banks and the eurosystem, frankfurt, 8 - 9 november 2005. * * * - looking at the world economy, one is struck by the pronounced differences in gdp growth rates of different countries and country groups as well as by the expansion of current account deficits and surpluses. some of the rapidly growing economies, notably the usa, have had to face increasing imbalances. this has intensified concerns over worsening problems and how to manage them. - as always, such unbalanced developments arise from a host of problems that are difficult to spell out. this is clearly reflected in the international debate concerning these problems. one must be wary of oversimplifying the problems and their solutions. careful analysis of the problems will clearly help us decide on an appropriate policy strategy. - current account problems should be viewed from several different angles. the logic behind macroeconomic variables presents three fundamental perspectives from which to analyse a current account deficit : 1. foreign trade and the services and income accounts of the balance of payments 2. the balance of savings and investment in the economy 3. developments in the economy's external assets and liabilities - analysis is usually dominated by the foreign trade aspect, so that policy debate tends to focus on trade barriers and exchange rates. this is also typical of recent discussions of the us current account deficit and the surpluses of many other countries, particularly in asia. - it is important to examine the current account also from the perspective of savings and investment. current imbalances in the global economy are largely due to the low level of savings and high level of consumption in some western economies, particularly the usa, and the abundant savings and modest private consumption particularly in several asian economies. recently, savings rates have also inreased sharply in oil - producing countries, with the boost in income from high oil prices. - one should also emphasise the factors related to indebtedness and financial investment. by definition, the increase in an economy's indebtedness is the counterpart of its current account deficit. often mentioned as determining factors in international capital flows are the depth of us financial markets and the us dollar's position as major reserve currency. these factors draw investment funds into the usa and so provide the financing for us