Testing prejudice

Some things are clear. Lasting stimulus, particularly in the US, will keep demand above what the supply-side was traditionally capable of in terms of productive growth. This could change. To do so a range of supply-side productivity-boosting factors would have to fall into place. If they don’t, the upshot will be traditional: inflation and much higher long-term interest rates. The demand-side is in a way simpler but less clear. Demand growth will be determined by whether people return to pre-pandemic behaviour, or whether they opt for a kinder post-growth society in rich countries. Wage income growth is likely to be modest in real terms. And social income is here to stay. So is big government and deglobalisation. Our conclusion for financial assets in the main is pessimistic.

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