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GDP growth closer to 'normal' than 'stagnant' in the next five years

In today's Fundamentals briefing, LGIM economist James Carrick discussed advanced economy growth, which has been running below its long-run average of 2.5% for the past five years. To assess the prospects for the next five years, James examined the fundamental drivers of growth: demographics, debt, regulations, energy, globalisation and technology.

"The optimists among us argue that weaker growth over the past five years is largely due to cyclical headwinds which should fade as economies heal from the financial crisis. The pessimists see structural impediments to growth, which increase the risk of recurring crises. We see merit to both sides of the debate," said James.

"Deteriorating demographics and higher debt levels are undoubtedly a headwind for growth over the next few years" explained James, "although these effects are being partially mitigated by higher retirement ages and austerity measures respectively".

One factor deemed key to future growth is an acceleration of capital expenditure as unemployment continues to fall. In a deregulated labour market, workers are more flexible than machines. It's easier to lay off staff in a broad economic downturn than to sell an underutilised building or machine. Firms laid off workers during the recession and are now hiring again. As wage costs increase, James expects firms to start raising capital expenditure once more.

"While we still have concerns on demographics and debt, we have seen positive signs from technological progress, particularly in energy and software. When combined with deregulation and improving credit conditions, we think that advanced economic growth will remain below average over the medium term, but closer to ‘normal' than ‘stagnation'" said James.

To download the full document, "Fundamentals: Rise of the machines", click here: Fundamentals July 2015 (PDF: 1630KB)  

Notes to editors

LEGAL & GENERAL INVESTMENT MANAGEMENT:
Legal & General Investment Management (LGIM) is one of Europe's largest institutional asset managers and a major global investor. LGIM manages £737billion in total assets for more than 3,000 clients*. Throughout the past 40 years we have built our business through understanding what matters most to our clients and transforming this insight into valuable, accessible investment products and solutions. We provide investment expertise across a full spectrum of asset classes including equities, fixed income, commercial property and cash. Our capabilities range from index-tracking and active strategies to liquidity management and liability-based risk management solutions.
*As at 31 March 2015


For more information please contact:

Richard King

Richard King
Head of Group Corporate Communications

t: +44 (0) 2031 242095
m: +44 (0) 7515 324001
e: richard.king@group.landg.com

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