And what’s more, said Bierre, head of the fixed income team within multi assets at Nordea Asset Management, the productivity collapse coincides with changing demographic trends. “In Europe going forward, we are actually going to see something similar to what we’re seeing in Japan - the work force is shrinking,” he said.
“And even in the US, where the demographic distribution is more benign, you’re also at an inflection point where you have lower trend growth.”
“So the combination of weaker work force growth and a collapse in productivity following the financial crisis, on both the demand and the supply side, means the medium term growth trends look quite muted. This is also why this low growth/low yield environment is going to last for a very long time.”
The current macroeconomic climate reminds Bierre of riding a bike. “Since the financial crisis we’ve never really reached cruising speed. We’re living in this low growth environment where even small challenges may turn out to provide a more hostile risk environment,” he noted. “That’s also why markets are very sensitive – we haven’t really got the crucial speed.” And, he said, overall the picture is unchanging.
And, he said, what does a policy of normalisation really mean if the underlying growth/inflation environment is different from what it was before 2008? Before the financial crisis, said Bierre, growth in the US was somewhere between 3-3.5%, today it’s probably around 2% or lower, while in Europe it’s closer to 1%.