International Economic Week In Review: The Global Productivity Slowdown Makes Headlines

Christine Lagarde of the IMF gave a speech that discussed the global productivity slowdown. She observed three main causes of this development:

One is population aging in most advanced economies. Research suggests that worker skills tend to increase until a certain age and then to decline—with negative effects on innovation and productivity, although this remains an issue still subject to debate. [3]

A second headwind is the slowdown in global trade. We know from well-established research that trade encourages firms to invest in new technologies and more efficient business practices. It also encourages the sharing of new technologies across borders. The lack of global demand and the gradual increase in trade restrictions have led to a slowdown in trade growth in recent years. This, in turn, has hurt the productivity and living standards of all citizens.

A third productivity headwind is the unresolved legacy of the global financial crisis in some major economies.    

Tim Taylor at the Conversable Economist Blog digs a bit deeper into the data. More and more, we’re hearing about the global productivity slowdown. Although no one has identified a central way to alleviate its causes, the fact that it’s getting out attention is a good thing.

EU news continues to be positive, starting with the Markit reports. The composite reading was 56.4, a 71 month high.And the 56 service level was a 70 month high. Manufacturing is also setting records: it was 56.2, a nearly 6-year high. Rising price pressures were the only negative in any of the reports. As for why this is happening, there are two general explanations. First, the ECBs interest rate program is clearly bearing results.Loan volume has been steadily picking up over the last few years, with loan growth now around 2%. Second, the euro is near a 5-year low relative to the dollar:

This is stimulating export orders.In other news, the unemployment rate continues ticking lower, falling .1% to 9.5%. And retail sales rose .7% M/M and 1.8% Y/Y, continuing their strong, upward advance.