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The key question today for the United States: Can potential growth be made to converge towards growth?
In the traditional approach, when the economy returns to full employment, growth returns at best to the level of potential growth. In the United States today, this suggests that growth will fall from 3% to 2% at most. But some economists, and certainly Donald Trump, believe that rather than the growth rate converging towards the rate of potential growth, potential growth instead could converge towards the actual growth rate. Stimulati on of demand with expansionary fiscal and monetary policy at full employment (which is the case at present in the United States) could thus result in: First, a continued rise in the participation rate, i.e. the return of more people (here Americans) to the labour market; Second, rising productivity gains, as companies have to produce more despite their hiring difficulties. What we are seeing in the United States at present points in the direction of growth falling back to the lower level of potential growth, as the labour force is not accelerating and productivity gains are increasing only very slightly.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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