• On all fronts, global economic growth remains soft: facing headwinds in the US, tepid in the Eurozone, underwhelming in Japan and decelerating across emerging markets (with exceptions, such as India). For reasons expanded below, and barring a productivity miracle triggered by technological innovation, GDP growth will disappoint in the coming years.
• Despite all the hype about technology and innovation, productivity is slowing down – or even falling – around the world (with the exception of India and sub- Saharan Africa). This is one of today’s great economic paradoxes that predates the onset of the “Great Recession” and for which there is no satisfactory explanation; that said, weak investment does seem to be an important factor. Let’s take the example of the US. Productivity fell by 2% in Q1 of this year (Y-o-Y), having risen by an anemic 0.4% per year since 2010, compared with a yearly 2.9% between 1995 and 2005. This is occurring against the backdrop of the 50 largest US companies hoarding more than $1tr of cash, despite real interest rates having hovered around zero for almost 5 years. Can this be attributed to a lack of opportunities? Or fears about the future? Whatever the reason, this has set into motion a vicious circle that is holding back GDP growth and progressively turning into a self-fulfilling prophecy.
• Productivity is the most important determinant of long- term growth and rising living standards, so the absence of it means that we’ll have less of each. But how can we be sure? Some argue that we are much better off, even with stagnating or declining real incomes, because gains in consumers’ welfare are substantial. However, their contribution to GDP growth is uncertain – Skype, Facebook or Twitter did not even exist a few years ago, and it’s hard to tell the extent to which they render our lives “better”. One thing is certain: gains in consumer’s welfare (if real…) do not raise incomes or increase tax revenues.

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