Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Greg Mankiw wikipedia , lookup
Economic growth wikipedia , lookup
Steady-state economy wikipedia , lookup
Business cycle wikipedia , lookup
Nouriel Roubini wikipedia , lookup
Post–World War II economic expansion wikipedia , lookup
Ragnar Nurkse's balanced growth theory wikipedia , lookup
Long-Run Economic Trends Presented to: OCA Interdisciplinary Seminar September 25th, 2015 Marc Lévesque, Vice President Economics and Market Strategy Economics and Market Strategy Key Issues Is the global economy shifting to a permanently slower growth track? “Secular stagnation” vs cyclical trends and supply-side constraints. Canada’s long-term growth prospects. A low interest-rate world: drivers and long-run prospects Economics and Market Strategy Key Issues Is the global economy shifting to a permanently slower growth track? “Secular stagnation” vs cyclical trends and supply-side constraints. Canada’s long-term growth prospects. A low interest-rate world: drivers and long-run prospects Economics and Market Strategy Global Economic Growth on a Slower Track Economics and Market Strategy Output Gaps Still Substantial Economics and Market Strategy Emerging Economies Gaps Also Wide Economics and Market Strategy Global Inflation Trends Very Subdued Economics and Market Strategy Interest Rates Stunningly Low Economics and Market Strategy Why is Growth So Slow? Three Key Issues: – Potential Growth – Deviations of growth from potential – One-off changes in the level of growth without a change in the actual growth rate Economics and Market Strategy Potential Growth The long-term potential growth rate of the economy may be declining. Potential growth is determined by the growth in productive inputs (Labour and Capital) plus the growth in the efficiency of those inputs to produce output. Slower potential growth may be the result of demographics, technological advances (heightened role of IT sectors that do not require much capital spending), reversion of Total Factor Productivity (TFP) to historical norm. Economics and Market Strategy Potential Growth Often seen as a supply-side version of “secular stagnation”, although the Summers story is unequivocally about aggregate demand. If the supply side is the culprit, the output gap can be closed, eventually generating inflation pressures and higher interest rates Economics and Market Strategy Persistent Deviations of Growth from Potential Demand-side story: the issue is chronically weak aggregate demand, excess of savings over investment. This is the Summers “Secular Stagnation”. Depressed investment and consumption spending prevent the economy from reaching potential. Ultimately can reduce aggregate supply because of low rates of capital formation and loss of workers’ skills due to LT unemployment. Summers observes that we have never seen full employment over the past several decades without the development of a bubble. Economics and Market Strategy Persistent Deviations of Growth from Potential Implies persistent output gaps, chronically weak inflation, mega-low interest rates. Negative real rates required to balance aggregate supply and demand. Monetary policy alone is not sufficient to generate full employment because of the zero lower bound. Policymakers forced to choose between sluggish growth and bubbles Greater reliance on fiscal policy is the solution Economics and Market Strategy One-Off Changes in Level of GDP Supply-side damage due to depreciation of employment skills Growth eventually returns to pre-crisis rate but not precrisis trajectory Leads to persistent output gaps, low inflation, low interest rates Symptom: permanent fall in labour force participation rates Economics and Market Strategy Some Observations Increasingly, the evidence points to supply-side factors Potential growth has fallen but the U.S. economy is closing the output gap and the unemployment rate has fallen. This does not smell of an aggregate demand problem. It is hard to believe that negative real rates will not eventually spur private investment. Economics and Market Strategy Some Observations Summers’ claim that full employment over the past several decades has not been achievable without a financial bubble is questionable. The tech bubble came late in the 1990s cycle. And several headwinds offset the housing bubble in the 2000s. Much of the slow growth relative to potential probably comes from the impact of the GFC on credit conditions, the slow recovery in housing, fiscal policy issues – all cyclical factors. We believe there will be some “normalization” over time. Much of the Secular Stagnation debate is focussed on the U.S., ignoring the international element Economics and Market Strategy U.S. Output and Unemployment Gaps Closing Economics and Market Strategy U.S. Potential GDP has Declined Economics and Market Strategy Productivity Growth has Weakened Economics and Market Strategy Slower Labour Force Growth Ahead Economics and Market Strategy Potential Falling in Most Advanced Economies Economics and Market Strategy Eurozone Labour Force Poised to Decline Economics and Market Strategy With Tight Credit Conditions… Economics and Market Strategy …and Public Deleveraging Adding to the Mix Economics and Market Strategy China’s Labour Force Also Set to Decline Economics and Market Strategy With Trend Growth Continuing to Moderate Economics and Market Strategy Key Issues Is the global economy shifting to a permanently slower growth track? “Secular stagnation” vs cyclical trends and supply-side constraints. Canada’s long-term growth prospects. A low interest-rate world: drivers and long-run prospects Economics and Market Strategy The Commodity Price Boom Has Run its Course Source: Bank of Canada Economics and Market Strategy China is the Marginal Driver of Commodity Demand Economics and Market Strategy The Favorable Urbanization Trend in the EMs will Help Support Commodities Economics and Market Strategy But Falling Real Commodity Prices are the Historical Norm, Not the Exception Economics and Market Strategy Canada’s Global Export Share Has Declined Source: IMF Economics and Market Strategy Canada’s Productivity Record Has Not Fared Well Against its Peers Economics and Market Strategy Labor Productivity Growth Slowed in the Last Decades Economics and Market Strategy Business Investment a Shrinking Share of GDP Source: Statistics Canada Economics and Market Strategy Canada’s Long Term Outlook Canada has benefited from a massive windfall gains from elevated energy and other prices. Support, however, has been undermined by a structural shift in commodity prices. Although commodity prices will recover some of their recent losses, slower global potential growth points to limited gains going forward. Canadian trade performance has deteriorated, and Canada has been losing market share abroad. Slower U.S. potential growth and Canada’s poor productivity performance point to only a modest kick from Canada’s external sector -- although a weaker Canadian dollar and some diversification into faster-growing emerging markets will help. Slower growth in Canada’s labour force will also limit potential growth These headwinds could mean that the average rate of potential growth for the Canadian economy will be closer to 2% going forward than the 2.5% to 3% Canada enjoyed in the first half of the past decade and the second half of the 1990s. Economics and Market Strategy Key Issues Is the global economy shifting to a permanently slower growth track? “Secular stagnation” vs cyclical trends and supply-side constraints. Canada’s long-term growth prospects. A low interest-rate world: drivers and long-run prospects Economics and Market Strategy The Legacy of the GFC Still Lingers in the Form of Higher Savings Economics and Market Strategy Recent Increase in Savings Coming From Developed Economies Economics and Market Strategy Ongoing Deleveraging in the DMs Contribute to the Imbalance Between Supply/Demand for Funds Economics and Market Strategy Monetary Policy Settings Will Remain Highly Accommodative Economics and Market Strategy Burst in Developed Economy Net Savings Likely to Subside Economics and Market Strategy Rates Still Low for Some Time At a very high level, the current low-interest rate environment largely reflects the global savings-investment balance – the supply and demand for loanable funds. The combination of private and public-sector deleveraging and depressed business investment within developed economies has been instrumental in holding down rates. Extremely accommodative monetary policy (low short rates and QE) and low inflation have also come into play. Economics and Market Strategy Rates Still Low for Some Time Going forward, net savings are likely to diminish while monetary policy will eventually normalize. However, it will take time before serious upward pressure on global interest rates will occur – we see rate “normalization” happening later rather than sooner. Economics and Market Strategy