Australia has turned the tide on its productivity slump but a top economic agency says more needs to be done to spur long-term growth.
Labour productivity has been in freefall as the economy returns to normal after the pandemic, but the Productivity Commission says there are early signs the COVID-19 bubble has burst.
In a quarterly assessment of productivity performance, based on national accounts data, the commission said fewer hours worked per person - not higher output - was responsible for an improvement.
Labour productivity rose increased 0.9 per cent in the September - the first quarterly growth since March 2022 - but was still 2.1 per cent lower on an annual basis.
Between March and June, productivity fell 1.6 per cent, and between January and March, declined 0.5 per cent.
The measurement of how much each worker is getting done is of significance to the Reserve Bank as it tries to bring down inflation.
The central bank expects to have consumer price growth back within its two-three per cent target range by late 2025, and these forecasts are predicated on productivity growth lifting.
Commission deputy chair Alex Robson said the welcome recovery in productivity growth needed to be understood in the context of the pandemic.
During the pandemic, workers temporarily moved out of sectors such as hospitality and into work that was more productive.
"That bubble burst as workers returned to those lower productivity sectors when pandemic-related restrictions eased," Dr Robson said.
He said this effect was only just starting to wear off, allowing labour productivity to approach pre-COVID levels again.
But he warned the September quarter results were unlikely the beginning of a sustained recovery in productivity growth needed to materially lift living standards, with pre-pandemic growth actually quite weak.
"It's a further sign that the kind of sustainable long-term productivity growth Australia needs will require the type of policy reforms we highlighted in our Advancing Prosperity inquiry report," Dr Robson said.
The report was released earlier in the year and contained 71 suggestions to get more out of less, including better skills and training.
