Independent Strategy

Productivity – solving the puzzle

The productivity of labour matters to investors. If we are stuck with low GDP and productivity (GDP per worker) growth, it limits potential returns on all economic assets. Low productivity would mean the output gap would shrink rapidly even at modest economic growth rates. In turn, that would herald a return of inflation and reversal of monetary policy. So there is no aspect of investment strategy that is immune to the question: is low productivity the result of low demand, or is it the result of damaged supply chains caused by misallocation of resources during the credit bubble and its aftermath? The former just needs demand to be topped up by animal spirits or by fiscal and monetary policies. If the productivity of the supply chain is impeded, the effects will last and are harder to address.

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