In “Self-Defeating Monetary Policy” we focused our discussion on U.S. productivity, but weak and slowing productivity growth is not just an American problem. All of the world’s leading economies are, to varying degrees, exhibiting the same worrisome pattern.
The graph below compares annualized productivity trends from three time periods – the 7 years immediately preceding the financial crisis, the 5 years immediately following the crisis, and the 2 most recently reported years (2013 and 2014). The black dot displays the change in trend from pre to post crisis. In all cases the black dot is below zero representing declining productivity growth. More troublesome, the world’s largest economies are most recently reporting either negligible productivity growth or a decline in productivity.
Global Productivity Growth Trends
Assuming that demographics are already “baked” and debt has been over-used to produce non-productive growth since well before the crisis, good old-fashioned productivity gains are what the global economy requires to produce durable organic growth in the developed world.
Central bankers, politicians and investors are well advised to understand this dynamic.
Data Courtesy: The Conference Board