1 Global economic growth: transitory deceleration or the new norm? With the passing of the acute phase of the global financial crisis, decision-makers and analysts are gradually starting to focus on the prospects of the post-crisis period. Although the crisis is not yet over in all regions – one need only mention the uncertainties surrounding Greece in the euro area or the deteriorating economic performance of some large emerging countries which were major growth drivers in the global economy during the crisis – the factors determining the long-term growth prospects play an increasingly important role in the global growth developments of the near future. The longer-term growth prospects significantly influence the actual burdens and financial risk stemming from the outstanding debt accumulated in the pre-crisis period and during the crisis, and have a fundamental impact on economic decisions, such as private sector investment. If the poor growth is mainly attributable to deleveraging, it will only be a temporary phenomenon and – although deleveraging may last for several years – it is not necessary to expect secular stagnation.1 Due to the debt overhang of the pre-crisis years, many sectors are still struggling with high accumulated debts, and the repayment and interest burdens on these debts reduce disposable income. Since deleveraging is occurring simultaneously in several sectors of the economy – i.e. the public and household sector – as well as in a number of large regions, the generation and growth of incomes is also slow due to the slack aggregate demand. However, as growth gradually accelerates, it is possible that the debt burden of the indebted agents may gradually decrease, and if inflation returns to the central bank target of 2-3 per cent, the real burdens could also fall. Investments may pick up in line with improving prospects and disposable earnings. However, if the deceleration of growth is more lasting and is attributable to factors independent of the financial crisis, there is real risk of secular stagnation even after the passing of the impacts of the crisis. Several questions and uncertainties with regard to the longer-term growth outlook already arose before the crisis and these were exacerbated by the impact of the crisis on the growth potential. Negative demographic factors already appeared before the crisis, first in the developed and later in the less developed regions. Productivity growth has gradually decelerated, due to the weakening macroeconomic effect of innovations. The share of fixed investments in aggregate demand has fallen in the developed regions, which may restrain productivity growth in the future as well. The increase in the economic weight of the service sectors, which is characterised by lower productivity, may have similar consequences. In addition to the long-term real economy factors, long-term financial factors may also influence the growth prospects. It was already observed before the crisis that enterprises dedicated a steadily decreasing share of their profit to the development of their capacities and organisational capabilities, and at the same time increasingly favour the financial investors and managers with equity holdings through dividend payments and share buy-backs. Stock exchanges reward this conduct, where the investors value the shares of those enterprises that provide the portfolio investors with short-term benefits, rather than those that invest in their own long-term future. Another sign of the financial markets’ short-termism is that even the venture capital investors appear only in the later phases of the development, which is closer to the market introduction stage and thereby representing lower risk. Riskier basic research is financed to a lesser extent both by large enterprises and investors financing the innovative small enterprises, where the state should take an increasing role. On 1
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In the modern literature, this concept is associated with Alvin H. Hansen (1), who was the first to discuss the risk of “secular stagnation” in 1938. He delivered a speech on this topic as the President of the American Association for Economy (see Hansen, 1939). Discussing the growth expectations of the world economy, Eichengreen defined secular stagnation as a trend-like decline in the real interest rate, which reflects low investments compared to savings and which results in a permanent output gap and/or slow growth.
GROWTH REPORT • 2015
