Economists Forecast the End of Growth as We Know It -- It's About Time
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The last few weeks has seen bad news for the global economy, with the US and Europe facing growth slowdowns, and even much vaunted economic powerhouses Brazil, Russia, India and China faltering unexpectedly. While mainstream economists continue to predict an ongoing 'recovery', other leading experts point to the end of growth as we know it for the foreseeable future.
Earlier this month, the International Monetary Fund (IMF) slashed its quarterly forecasts for global GDP growth from 3.3% to 3.1%, and revised down growth estimates for other major powers. The US forecast was downgraded from 1.9% to 1.7%, and Europe is expected to contract 0.6% rather than the originally estimated 0.3%. The IMF also downgraded growth forecasts for 2014.
Against this background, evidence has emerged that the era of booming economic growth is over, and that we are entering an age of permanently slow growth - at best.
A new paper in the journal International Productivity Monitor finds that underlying the US recession is a long-term decline in productivity growth, interrupted briefly by the "dot.com revolution" for eight years, followed by a slump "to 1.47 in the past eight years."
Study author US economist Prof Robert J Gordon of Northeastern University concludes:
"... we face a significant possibility that the disposable income growth for the bottom 99% of the income distribution could be as low as 0.5% per year, or perhaps even 0.2%."
This conclusion complements Gordon's previous prediction last year that by 2100, the US economy would return to an annual growth rate of 0.2%. He describes the second industrial revolution as the core driver behind rocketing growth experienced over the last 250 years, noting that the main factor behind the continuing slump since 1970 - escalating over "the last eight years", was a lack of sufficient industrial innovation capable of fundamentally "changing labour productivity or the standard of living."
"Future growth in real GDP per capita will be slower than in any extended period since the late 19th century."
The "headwinds" holding growth back include key economic issues such as "rising inequality", the "end of the 'demographic dividend'", the "overhang of consumer and government debt", as well as "the consequences of environmental regulations and taxes that will make growth harder to achieve than a century ago."
While Prof Gordon has his naysayers, his outlook is surprisingly corroborated by other experts. HSBC Group chief economist Stephen D. King's new book, When the Money Runs Out: The End of Western Affluence, portends how the age of high economic growth will never return, largely due to the "exhaustion of various one-off productivity gains that boosted growth after World War II" and "a tripling in rates of consumer credit founded on an unsustainable increase in housing prices", among other factors. King disagrees with Gordon's worst-case scenarios, but agrees that the dividends that made high growth possible in the past appear largely "unrepeatable."
Last month, King and HSBC also slashed their global growth forecasts for 2013 from 2.2% to 2.0%, which they explained was due to unexpected slowdowns in emerging markets.
These downgrades are yet another example of the failure of mainstream economic models to keep up with the real nature and pace of global economic deterioration. Indeed, missing from the above analyses is recognition of a central factor: that the productivity gains driving industrial growth were enabled by the abundance of cheap fossil fuelsand other resources.
In his latest newsletter, legendary fund manager Jeremy Grantham - who made billions predicting every major stock market bubble of recent decades - warns that cheap resources are history: