Growth is productivity dependent
Productivity, across the globe, has been declining. In the US, for instance, pre-Lehman productivity was 2%+. The collapse of the Lehman Brothers occurred in 2008. Before that, productivity in the US has largely remained above 2% (see chart below).
Bill Gross blames low private sector investment
Post the financial crisis (2008-2009), the economy began to recover and quickly embraced all the low-hanging fruits that are the result of research and technological advancement such as electrification.
Now, with all the low-hanging fruits (or the immediate benefits of R&D and technology) been made good of, we’re in an era, where productivity is largely declining. The long-term benefits of the low-hanging fruits are still to be relished by the economy. “The benefits of smart phones and medical technology are still to have a positive impact on the economy and growth,” commented Bill Gross in his investment outlook for April. Gross sees the decline in productivity a result of low levels of private sector investment.
IMF warns of global productivity slowdown
An IMF study said: “unless there is an unforeseen technological breakthrough, productivity growth is unlikely to return to the higher rates of the 1990’s for advanced (EFA) (VEA) economies or the early 2000’s for emerging (EEM) (VWO) economies.” Protectionism in the form of “increasing tariffs and developing restrictions on immigration will only exacerbate the slowdown,” said the report.
Kyle Bass sees productivity rising from here
Now, Kyle Bass, who manages the $1.8 billion hedge fund Hayman Capital, holds an alternate view here. For the U.S., Bass believes that economic policy is going to take broad steps which would be extremely stimulative for the US economy (SPY) (IWM) (QQQ) and would favor labor over capital. He thus sees, US productivity rising from here.