Growth in stress

We propose a new global risk index, Growth-in-Stress (GiS), that measures the expected fall in a country’s GDP as the global factors, which drive world growth, are subject to stressful conditions. Using the GDP growth rates of 87 countries, we find that, since the 2008 financial crisis, though mainly from 2011 on, the world overall has fallen in a state of complacency, with the cross-sectional average GiS falling quite dramatically; in 2015, the average worst outcome seems to be no growth at the 95% probability factor stress. However, the cross-sectional dispersion within groups is quite variable: it is the smallest among industrialized countries and the largest among emerging and developing countries. We also measure the factor stress on different quantiles of the GDP growth distribution of each country. We calculate an Armageddon-type event as we seek to find the GiS on the 5% quantile of growth under the extreme 95% probability events of the factors, and find that it can be as large as an annual 20% fall in GDP.     

United States

Real GDP growth for the second quarter was revised up to an annualized rate of 4.6%, from a second estimate of 4.2%, as final sales advanced 3.2% and inventories contributed 1.4 percentage points to growth. Business investment stole the limelight with a 9.7% advance, while consumer outlays contributed 1.8 percentage points to growth. Newly available data for Q2 also led to an upward revision of residential investment, and a stronger net trade contribution. We expect the economy to grow by just over 3% in Q3, with the economy expanding 2.2% in 2014 as a whole and 3.1% in 2015…     

Information technology and U.S. productivity growth: evidence from a prototype industry production account

The rapid productivity growth in the US during the Information Age, prior to the dot-com bust in 2000, and the large contribution of the IT producing sector, is well known. Less known are the sources of the surprisingly rapid TFP growth during the slow growth period after 2000. We construct an account of US economic growth by aggregating over detailed industries using a new data set based on the NAICS classification. We find that, post 2000, TFP originating from the IT-Producing sector decelerated relative to the IT boom, but still accounted for 40% of aggregate productivity growth. This deceleration was counterbalanced by the contribution from IT-Using sectors, which buoyed aggregate TFP growth to almost the same rate as the 1995–2000 period. For aggregate GDP, the contributions to the growth rate of 2.8% during 2000–2007 were: capital input (1.7% points), labor input (0.4) and TFP (0.7).     

United States

Annualised real GDP growth was revised to a staggering 5% in Q3 2014, the strongest reading since 2003, as final sales advanced 5% while inventories were neutral for growth. Consumer spending growth was revised up from 2.2% to 3.2%, mostly on stronger services spending, while business investment grew by 8.9%. Net foreign trade was a significant positive factor driving GDP growth in Q3, contributing 0.8 ppt, while government spending was revised up modestly to 4.4%. We expect the economy to have grown by around 3% in Q4, resulting in GDP growth of 2.4% in 2014 overall, with a 3.3% expansion forecast for 2015…     

United States

Real GDP advanced by 3.5% on an annualized basis in Q3 2016, with final sales up 3.0% and inventories adding 0.5pp. We estimate that growth moderated to 2.4% in Q4 2016. This would mean that real GDP growth averaged 1.6% in 2016, and we expect it to firm to 2.3% in 2017. We see the Trump administration focusing more on its pro‐growth fiscal agenda than on a protectionist and anti‐immigration platform. We expect that the peak growth effect from increased government infrastructure outlays and tax cuts will occur in early 2018, with average growth that year expected around 2.5%.     

United States

GDP grew by an annualized 1.1% in Q1 2016 as final sales rose 1.3% and inventories shaved 0.2pp from growth. Consumer spending rose 1.5%, while residential investment surged 15.6%. Meanwhile, business investment contracted 4.5%, its worst performance since Q3 2009, and net trade added just 0.1pp to growth. We expect modest GDP expansion of 2% in 2016 and 2.3% in 2017, with domestic activity constrained by global headwinds.     

United States

Real GDP grew by 3.2% on an annualized basis in Q3, with final sales advancing a more modest 2.4% and inventories contributing a solid 0.8pp. Overall, the data was indicative of a 2–2.5% underlying pace of growth. We estimate Q4 growth of around 3.2% annualized, meaning the economy grew by 2.3% in 2017 as a whole.     

World economy

The recent run of soft survey data suggests that an imminent rebound in global GDP growth is unlikely and that concerns about slowing growth and trade tensions may now be taking a toll on service sector activity. We still forecast global GDP growth to slow into early next year but while recession risks have increased, we do not see this as the most likely scenario. In both 2019 and 2020 as whole we expect global GDP growth to average 2.5% each year, the weakest rate since 2009.     

World Economy

Near‐term US growth prospects have been damaged by the two‐week government shutdown and dispute over raising the debt ceiling in the first half of October. We estimate that Q4 US GDP growth (on an annualised basis) will have been cut by up to 0.5% points. We now forecast economic growth of 1.6% for the US in 2013 and 2.9% next year.…     

Growing through the merger and acquisition

The paper studies with an endogenous growth model how the merger and acquisition (M&A) affects the aggregate growth rate. We model the M&A as a capital reallocation process, which can increase both productivity and growth rates of firms. The model is tractable and greatly consistent with patterns observed in the M&A at the micro level. Matching our model to the data, we find that prohibiting the M&A would lead to the reduction of the aggregate growth rate of US economy by 0.1% and the reduction of the aggregate TFP by 5%.     

Forecast Overview

We have raised our 2014 GDP growth forecast to 3%, from 2.6% three months ago, after a run of positive indicators. We have also nudged up our 2015 forecast from 2.4% to 2.5%. Not only have recent data suggested stronger momentum, but there have also been signs of improving exports and business investment, raising the prospect of more balanced growth this year…     

Productivity and Growth in UK Industries: An Intangible Investment Approach*

This article calculates some facts for the ‘knowledge economy’. Using new data, first we document UK intangible investment and find that (i) this is greater than tangible investment by £37bn in 2008; (ii) R&D is 11% of total intangible investment, software 15%, and training and organizational capital 22% each; (iii) the most intangible‐intensive industries are manufacturing and financial services. Next, we measure the contribution of intangible capital to growth for 2000–08. We find that intangible capital accounts for 23% of labour productivity growth and treating intangibles as investment lowers total factor productivity growth in the 2000s by 24% (R&D lowers it by 3%).     

Economic growth,volatility and their interaction: What’s the role of finance?

This paper examines the relation between financial depth and the interaction of economic growth and its volatility. We use a sample of 52 countries for the period 1980–2011, and our main finding is that, at moderate levels of financial depth, further deepening increases the ratio of average growth to volatility; however, as financial depth increases, this relation reverts, and the rise in volatility overcomes that of economic growth. This result is obtained both in the medium and long run; however, the peak of the relation seems to be lower in the medium run (around 40%–55% of domestic credit/GDP) than in the long run (around 75%–99%). This suggests that increasing the level of domestic credit may intensify relative volatility in the medium term, but still raise relative long-term growth before the long-run threshold is achieved.     

World Economic Prospects Monthly

Overview: Coronavirus to cut global growth to new lows

• ▀ The rapid spread of coronavirus will weaken China's GDP growth sharply in the short term, causing disruption for the rest of the world. We now expect global GDP growth to slow to just 1.9% y/y in Q1 this year and have lowered our forecast for 2020 as a whole from 2.5% to 2.3%, down from 2.6% in 2019.
• ▀ Prior to the coronavirus outbreak, there had been signs that the worst was over for both world trade and the manufacturing sector. However, this tentative optimism has been dashed by the current disruption.
• ▀ While the near-term impact of the virus is uncertain, the disruption to China will clearly be significant in Q1 – we expect Chinese GDP growth to plunge to just 3.8% y/y. Even though growth there will rebound in Q2 and Q3, it will take time for the loss in activity to be fully recovered and we now expect GDP growth of just 5.4% for 2020 as a whole, a downward revision of 0.6pp from last month.
• ▀ Weaker Chinese imports and tourism and disruption to global supply chains will take a toll on the rest of the world, particularly in the Asia-Pacific region. And the shock will exacerbate the ongoing slowdown in the US and may result in the eurozone barely expanding for a second quarter running in Q1.
• ▀ Weaker oil demand in the short term has prompted us to lower our Brent oil price forecast. We have cut our projection for growth in crude demand in 2020 by 0.2m b/d to 0.9 mb/d and now forecast Brent crude will average $62.4pb in 2020, down from about $65pb in our January forecast.
• ▀ Quarterly global growth is likely to strengthen a little in H2 this year as the disruption fades and firms make up for the lost output earlier in the year and the effect of China's policy response starts to feed through. But for 2020 overall, global growth is now likely to be just 2.3%, 0.2pp weaker than previously assumed as a result of the epidemic.

     

U.S. University Research Parks

University research parks are important as a mechanism for the transfer of academic research findings, as a source of knowledge spillovers, and as a catalyst for national and regional economic growth. We develop a model to describe the growth, or productivity, of research parks, and we test this model using the newly constructed National Science Foundation database on university research parks. We find that parks closer to the university, operated by a private organization, and with a specific technology focus—information technology in particular—grow faster than the average of 8.4% per year.     

Global wages: we don't (yet) have lift‐off

• ? Policymakers, most notably in the US, have been expecting wage growth to pick up for some time as job markets tighten. But the data over the last six months have shown few indications of wage lift‐off. Our review of the latest evidence suggests that although labour markets are, on the whole, still tightening, we see increased downside risks to our forecasts for faster global wage growth in 2018–19.
• ? Rates of “churn” in labour markets – a possible precursor to faster wage growth – have continued to rise in the US and parts of Europe.
• ? But other structural factors may still be holding wages down. A recovery in prime‐age participation in the US may be helping to cap wage rises, as may a pool of “underemployed” workers in the US and UK (though this pool is shrinking fast).
• ? Productivity growth also remains weak, running at a 0.5%–1% annual pace in Q1 2017 across the US, UK, Germany and Japan. This compares with a G7 average pace of 1.5% per year in 1985–2006.
• ? Overall, the risks to our baseline forecast of faster wage growth in the major economies in 2018 look skewed to the downside. We expect wage growth to firm in 2018 by 0.5–1 percentage points in the US, UK, Germany and Japan. We would give this modal forecast a probability of around 60%, but with a 25% chance that wage growth is somewhat slower than this and only a 15% chance that it is higher.

     

United States

Annualised real GDP growth came in at −0.2% in Q1. Final sales fell 0.6% and inventories added 0.5 percentage point (pp) to growth in the first quarter. Consumer spending rose 2.1% and contributed 1.4 percentage points to GDP growth. Business investment fell 2.0% on a massive 18% plunge in non‐residential structures, while net foreign trade and government spending exerted 1.9 and 0.1 pp drags on growth respectively. The soft Q1 has led us to revise down our 2015 GDP growth forecast from 2.7% in April to 2.3% now. We expect the US economy to grow by 2.8% in 2016.…     

HUMAN CAPITAL AND URBAN GROWTH IN ITALY, 1981–2001

Over the last decades of the XX century, human capital has emerged as a critical source of agglomeration economies fueling urban growth in advanced economies. Focusing on the Italian case, this paper assesses the contribution of human capital to urban growth, the latter gauged by employment growth between 1981 and 2001. A 10% higher share of college‐educated residents prompted a higher growth in employment in the 0.5–2.2% range. These results hold controlling for a wide set of urban characteristics and using an instrumental variable approach. By exploiting a spatial localization model, we disentangle the estimated effect into two components related to higher productivity and to higher life quality, respectively. We found that the former contributed to more than 60% of the effect at municipal level, and to over 90% at the wider local labor market level.     

Population,pensions, and endogenous economic growth

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy and obtain the following results. First, the effect of a decline in population growth on labor productivity growth is positive and quantitatively significant. In our benchmark, it is predicted to increase from an average annual growth rate of 1.74% over 1990–2000 to 2.41% in 2100. Second, institutional characteristics of the pension system matter both for the growth performance and for individual welfare. Third, the assessment of pension reform proposals may depend on whether economic growth is endogenous or exogenous.     

Australia’s mining productivity decline: implications for MFP measurement

This paper investigates the mining sector’s poor productivity performance as measured by the growth accounting formula for multifactor productivity (MFP) index during the recent mining boom in Australia. We provide an alternative measure of productivity growth by estimating a translog variable cost function, with parameters that separate productivity growth due to technical change from that due to the effects of returns to scale, capacity utilisation and natural resource inputs. The results show that the average MFP growth in Australian mining based on the dual cost-function measure of technical change is 2 % over the sample period 1974–1975 to 2007–2008, rather than ?0.2 % from the published index. The difference arises because declining natural resource inputs, the effects of capacity utilisation and returns to scale have all reduced the ‘true’ MFP growth.