OECD countries: After COVID, lower real potential growth, lower average core inflation and therefore much lower nominal potential growth

In OECD countries, the recession caused by the COVID crisis should first lead to lower real potential growth under the effect of the loss of productive capital and human capital and the proliferation of listless zombie firms. It is also likely to lead to a further skewing of income distribution against wage earners, given companies’ determination to restore their profitability , leading to even lower growth in unit labour costs and even lower core inflation. If both real potential growth and core inflation are lower, nominal potential growth will be considerably lower, which will require even lower nominal long-term interest rates than before the COVID crisis.