Friday, February 5, 2016

Technolink Snapshot February 2016





Technolink Member
Terry O’Neill
Shares a SnapShot of His Economic Perspectives for 2016
“Exploring the New Abnormal”


Exploring the new abnormal: I expect global GDP growth to accelerate by a mere 0.2 percentage points in 2016. In my view, this tepid pace of expansion reflects the slump in potential growth across both DMs and EMs—a trend that points to a prolonged period of sluggish growth and low inflation ahead.

This new abnormal—has both cyclical and structural roots, with the chief cyclical element being demand weakness as a consequence of deleveraging, a process that began in the U.S. in 2008 and spread to Europe in 2010-11. Since 2013—following the Fed’s tapering of QE, the start of China’s slowdown and the end of the commodity super-cycle—deleveraging has been playing out in the EM world as well.

Waves of deleveraging amplify the risk of hysteresis, whereby the cyclical slowdown would morph into a secular one as a persistently depressed cycle chips away at trend growth.

Population aging is throwing up structural impediments to growth—lowering investment, reducing productivity gains and, in the face of unfunded pension systems across much of the world, raising desired savings. All of these shifts dampen demand and undercut growth.

Higher savings have failed to spark higher investment as a result of deleveraging and regulatory, economic and policy uncertainties, among other factors. And tech-sector innovation has yet to show up in total factor productivity growth.

Structural reforms have been inadequate. DM governments bear some of the blame, but EMs have been especially remiss on the reform front, failing to see the need for change in the boom years and fearing contraction in lean periods.

Rising inequality is another brake on growth, as average savings rates tend to rise when wealth and income are redistributed from labor to capital and wages are transformed into profits.



More Info
Terry O'Neill
Founder, President and CEO
The O'Neill Company
www.theoneillco.com
The O'Neill Company




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