This is for investment professionals only and should not be relied upon by private investors
October 2015
Investing in a world of secular
stagnation
AT A GLANCE
Low growth, low inflation, low interest rates. What explains the
persistence of these conditions in developed economies?
The secular stagnation hypothesis - a world of deficient global demand
where the supply of savings exceeds investment demand - offers a
most plausible explanation. Moreover, if the hypothesis is correct and
the conditions are sustained, then there are serious implications for
economic policy and investors.
THE GLOBAL ECONOMY OF TODAY
The post-crisis global economic recovery has been unusually weak. Average nominal
economic growth rates for the G6 group of advanced countries remain well below the
previous cycle (see Appendix Chart 1) and trend growth rates have also been declining
(see Appendix Chart 2). But the most notable indicator of this low-growth environment
has been an extended period of exceptionally low interest rates, both central bank
policy interest rates and market bond yields (see Chart 1 below), in both nominal and
real terms.
Part of the explanation for very low interest rates is low inflation, since investors require
higher yields when inflation is high to compensate for the declining purchasing power of
money. However, even accounting for this by adjusting for inflation we can see that real
interest rates throughout the world are still very low by historical standards.
Chart 1. Low policy and market interest rates
20
US 10 year Treasury yield
18
Federal Funds Rate
16
14
Germany 10-year yield
%
12
ECB ST Euro repo rate/Germany discount
rate
10
8
6
4
2
0
1980
1985
1990
1995
2000
2005
2010
2015
Source: Datastream, October 2015
WHAT IS THE SECULAR STAGNATION HYPOTHESIS?
Given that very low inflation alone cannot explain very low interest rates, the answer
must lie elsewhere. One theory that has gained traction in recent times is US former
1
Treasury Secretary Larry Summer’s concept of ‘secular stagnation’ - the notion that
we now live in a world of structurally slower economic growth owing to insufficient
demand, best evidenced by a distinct excess of global savings over investment. If
savings are persistently high compared to investment then this implies an environment
of ‘too much money chasing too few assets’ and it stands to reason that interest rates,
the key variable that equilibrates savings and investment, must be correspondingly
low. It also means that deflationary pressures will tend to outweigh inflationary
pressures.
In order to assess the validity of the secular stagnation prognosis, we examine in detail
the evidence for structurally higher global savings, sometimes called the ‘global
saving glut’, and for structurally lower global investment.
The secular stagnation theory
provides a plausible explanation for
today’s low growth, low inflation
and low interest rate environment
The theory argues these conditions
are the result of a structural excess
of global savings over investment
High savings are being driven by:
1) demographics;
2) rising income inequality;
3) growth in EM saving
Low investment is being driven by:
1) cheaper investment goods;
2) companies’ reduced capital
intensity;
3) declining working age
populations;
4) growth in corporate pay-outs
If secular stagnation is correct, it
has a number of serious economic
policy and investment implications
For investors, it implies:
•
‘Lower for longer’ interest rates
•
Ongoing demand for income,
including equity income, real
estate & multi-asset income
strategies
•
Valuation support for equities
•
Especially for those companies
offering genuine growth and
innovation
•
A need for active discrimination
and detailed company analysis
Explaining secular stagnation and the global savings glut
Source: Fidelity Worldwide Investment, October 2015
WHY ARE SAVINGS STRUCTURALLY HIGH?
Demographics - the rise of ‘prime savers’: Savings have been increasing in many
developed countries owing to the relative growth of those population segments that
tend to save more. In particular, Modigliani’s life-cycle model of consumer spending
and savings informs us that young people typically ‘dis-save’, while savings rise in the
mid-cycle years before being run down in the retirement years. This framework is
useful because it clarifies that rather than ageing per se, a key driver has been the rise
2
of ‘prime savers’, those middle-aged cohorts who have both significant earnings
power coupled with rising incentives to save for retirement.
Rising inequality - the rich save more: Savings have also been increasing owing to
the clearly observable trend in many countries for income and wealth to be
concentrated in the hands of fewer people. In the case of the US for example (Chart 2
below), the share of income going to the top 1% has more than doubled from 10% in
1980 to over 20%. This is highly relevant in terms of savings because higher earners
typically save more as a proportion of their income compared to lower earnings
groups, so with more earnings flowing to this group, this implies an increase in savings
at the aggregate level.
Another notable perspective on the effect of growing income inequality is provided by
3
the work of Thomas Piketty, of the Paris School of Economics, who forecasts that the
global capital/income ratio will go on rising, with net savings set to grow twice as fast
as income. In particular, as shown in Chart 3 overleaf, Piketty argues that the ratio of
private capital to income, currently standing around 450% today will approach 700%
by 2100.
Chart 2. Rising income inequality
Chart 3. World Capital/income ratio, 1870-2100
1000%
37.8%
40
35
30
Value of private capital (as % of national
income)
In the US, the top 1%'s share of
income (red line) has more than
doubled since 1976 to over a fifth
of the total
21.2%
%
25
20
23.2%
15
10
10.0%
5
1914 1924 1934 1944 1954 1964 1974 1984 1994 2004 2014
United States-Top 5% income share
United States-Top 1% income share
Source: World Incomes Database, Paris School of Economics, October 2015
900%
800%
700%
600%
500%
400%
Projection based
on central
scenario
300%
WWI
200%
WWII
100%
0%
1870 1890 1910 1930 1950 1970 1990 2010 2030 2050 2070 2090
Source: Thomas Piketty, September 2015
Emerging market savings - growth in EM surpluses and FX reserves: Another key
driver of increased global savings, suggested most notably by former US Federal
Reserve Chairman Ben Bernanke, is increased savings on the part of China, other
4
emerging market economies and major oil producing countries. In all these regions,
merchandise exports have exceeded imports for sustained periods, resulting in
sizeable current account surpluses and increased foreign exchange reserves.
Chart 4. China’s FX reserves accumulation
4000
3500
China FX reserves ($bn), LHS
30
China share of US Treasuries
market (%), RHS
25
$ bn
3000
20
2500
15
2000
1500
10
1000
5
500
0
2000
% share of total
4500
0
2003
2006
2009
2012
2015
Source: Datastream, October 2015
In economic terms, the implication of a current account surplus is that savings must
exceed the available investment opportunities in that country, resulting in these excess
5
savings being invested in other countries, potentially pushing down global interest rates.
This is supported empirically both by the rapid growth in EM reserves in the past decade
and soaring foreign investment in US Treasuries, with China the most prolific example.
WHY IS INVESTMENT STRUCTURALLY LOW?
Declining relative price of investment goods - more with less: as argued by Gregory
7
Thwaites, a key factor that helps to explain the reduction in corporate investment demand
has been the structural decline in the price of investment/capital goods, such as machines
and equipment, relative to all the other things produced in the economy. In particular, as
the price of investment goods falls, a given quantity of money can buy more of these
goods. This makes good intuitive sense if we consider for example, the computing power
that can be purchased for a given amount today compared to five years ago, a
transformation that has had myriad benefits and opened up multiple avenues of innovation.
Reduced capital intensity of companies - more with less: Another factor that helps to
explain the weakness of corporate investment are structural changes in the global
economy that make the companies of today less capital reliant. As Chart 5 overleaf shows,
in OECD countries, in the post-crisis period, returns on equity have bounced back strongly
but the pick-up in investment in the same period has been moderate. Moreover, robust
returns on equity (ROE) of late have actually been led by a comparatively small group of
companies. In the case of the S&P 500 for example, as shown in Chart 6 (overleaf), it is
only the top 10% of companies (ranked by ROE) that have been able to increase returns
consistently, while returns for the remaining 90% have cycled around a generally flat trend.
In 2000, China FX reserves
totalled $165bn, with $60bn
invested in US Treasuries,
accounting for 5.9% of the total
treasuries market.
By June 2015, China’s FX
reserves had surged more than
20-fold to $3,561bn, with
$1,271bn invested in US
Treasuries, equal to 20.6% of
the total market. 6
Chart 5. OECD business investment and ROE - less capex
needed to maintain returns
16
27
60
60
26
50
50
25
14
24
12
23
10
22
8
21
Investment share of
OECD country GDP RHS
6
4
20
3- yr average ROE (%)
Return on equity for MSCI
developed markets - LHS
18
% of GDP
Return on equity (ROE), %
20
Chart 6. S&P 500 companies grouped by ROE * - high ROEs
due to relatively few companies
19
2
20
20
10
0
1995
12
35
9
30
6
Capex/Sales - RHS
Capex/sales (%)
Incremental return (%)
15
Incremental return (operating
income/change in assets) - LHS
3
20
15
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
Source: Minack Advisors, June 2015; * returns and capex are for top 10% of S&P 500 companies ranked by trailing ROE
Demographics - fewer working age people: While demographic factors, notably the
growth of prime saver cohorts, are clearly boosting demand for saving (as outlined above),
they are also playing a key role in reducing investment demand. It is well established that
populations are expanding more slowly and getting older on average in virtually all
developed countries. This reduces the number of working age people (those aged 15-64)
which is a key determinant of long-term economic growth.9 In the case of both Germany
and Japan, the working age population has already been shrinking for the past decade. As
the number of workers declines, this reduces demand for investment since companies
need less capital stock (i.e. equipment, machines etc), which is dependent on the number
of workers employed.
Chart 8. Declining working age populations (% of total)
72
70
68
66
64
Italy
US
Japan
60
1972
1976
1980
1984
1988
1992
Source: World Bank, World Development Indicators, July 2015
2000
Bottom 30%
2005
2010
-10
2015
Source: Minack Advisors, Bloomberg, June 2015 * ROE groups re-sorted each year
45
62
10
Second 30%
0
Chart 7. Top 10% incremental return generators and their capital spending v sales * Top companies need less capex to generate returns
25
30
Third 30%
If fewer companies are generating growing returns, then other things equal, this implies
reduced aggregate demand for investment and reduced capital intensity. However in
addition to this, as shown in Chart 7, it is also apparent that the top incremental return
generating companies are increasingly ‘capital-lite’. This is best summed up in the
observation that in the late 1990s, US companies ranked in the highest 10% by ROE spent
8
twice as much on investment as the remaining 90% but today they spend half has much.
40
40
Top 10%
30
-10
1990
18
1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Source: Minack Advisors, OECD, MSCI, NBER, June 2015
40
France
UK
Germany
1996
2000
2004
2008
2012
Corporate incentives - the rise of buybacks and payouts: Essentially companies have
two uses for their surplus cash – they can invest in their business or return the money to
shareholders via dividends and/or share buybacks. In recent years, we have seen a
marked preference for companies to invest less and pay more back to shareholders. In
2014, non-financial companies in the MSCI AC World Index cut their investment by 6% but
increased shareholder payouts by a sizeable 15%. As shown in Chart 9, this appears to be
part of a longer term trend: in 1995, companies reinvested $3.80 for every dollar paid out to
shareholders, but in 2014, the amount reinvested stood at $1.70 per dollar of payouts.10
Chart 9: Global investment/pay-out ratio *
4.0
3.5
3.0
2.5
2.0
1.5
1.0
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Citi Research, May 2015, * Listed non-financial corporates
A number of factors can help to explain the observed decline in the global
investment/payout ratios. Firstly, despite plentiful surplus cash, it appears companies do
not see enough demand to justify the risks inherent in expanding their productive capacity.
This is certainly supported by low capacity utilisation rates seen in many parts of the
11
world. Secondly, as outlined earlier, the relative cost of investment goods is declining so
there can be more ‘bang for the buck’ for a given unit of investment, with many of today’s
leading companies also benefitting from being less capital intensive. Thirdly, company
managers may be responding to growing evidence that dividend paying and dividend
growth stocks are getting more highly rated in today’s financial markets, owing to strong
demand from income investors in a low yield world. Finally, and perhaps more
controversially, another factor could be company managers who may view pay-outs as a
less risky way of improving both shareholder returns and their own remuneration.
WHAT ARE THE ECONOMIC IMPLICATIONS?
If the secular stagnation theory is correct, and the present mix of conditions persists, then it
has big implications for economic policymaking. Since the theory posits that weak
aggregate demand and economic growth is the consequence of both high saving and weak
investment, it follows that these are the two areas requiring remedial policy action.
On the savings side, increased saving on the part of ‘prime savers’ for retirement is both
prudent and necessary. However in the past few years it is perhaps no coincidence that
income inequality and international financial imbalances have noticeably risen up the policy
agenda in many countries. In order to reduce inequality, many countries, including the US
12
and UK for example, have been raising minimum wages quite aggressively. In terms of
international financial imbalances, part of the solution is for high current account surplus
countries to rebalance away from exports and more towards domestic demand, so as to
increase imports, thereby slowing the growth of their external surpluses, which have been a
key driver of the global savings glut. Interestingly, this is broadly the long term policy being
pursued in China today.
On the investment side, possible solutions in terms of the decline in working age
populations, notably efforts to boost labour force participation through higher retirement
ages and greater female participation, are already being pursued in many parts of the
world. Encouraging selective immigration is another classic solution to declining working
age populations. In terms of the structural changes making companies less capital intense,
action to alter this trend may not be desirable, but policymakers are constantly seeking
ways to improve the business environment by creating more favourable conditions and
incentives for investment and entrepreneurialism.
WHAT ARE THE INVESTMENT IMPLICATIONS?
In addition to economic policy considerations, secular stagnation also has a number of
important investment implications, including:
Lower-for-longer rates and bond yields - with savings likely to exceed investment
demand for the foreseeable future, it is very likely that rates and bond yields will stay low
compared to their long term history. This is evident in the evolution of central bank
monetary policy in recent years as expectations of rate rises in the US have been
consistently pushed back. Indeed, post-financial crisis, it is notable that many of the
developed world central banks that have tried to raise rates, including the ECB,
Sweden, Canada, Australia and New Zealand have all subsequently backtracked.
The US Federal Reserve’s own ‘dot-plot’ of rate expectations, depicted in Chart 10
below shows the reductions in Fed members’ rate expectations, including for the longer
run ‘terminal rate’ (the level at which rate hikes will be concluded). The same downward
trend is evident in market-implied projections for the terminal rate, and in estimates of
the ‘neutral real rate’, the theoretical rate that equilibrates both aggregate demand and
supply and savings and investment.
Chart 10: Evolution of Fed members’ year-end rate expectations (Mar-Sep 2015)
4.000%
3.500%
3.750%
3.500%
Fed members' median interest
rate expectations have been
shifting down successively
3.000%
3.125%
2.875%
2.625%
2.500%
2.000%
1.875%
1.625%
1.375%
1.500%
1.000%
0.625%
0.375%
0.500%
0.000%
2015
March 2015 prediction
2016
2017
June 2015 prediction
Longer run
September 2015 prediction
Source: Summary of Economic Projections, Federal Reserve, Fidelity Worldwide Investment, 21.09.2015. Note markers
depict mid-points of Federal Open Market Committee members’ year-end estimates for the Federal Funds Target Rate
Increased demand for income strategies - if interest rates stay low as implied by
secular stagnation, then this suggests an environment of continuing income scarcity.
Coupled with rising demand from the growing numbers of people in retirement, this
entails a favourable outlook for those assets that can provide steady, reliable, and
ideally, growing income streams. Indeed, this is consistent with the strong investor
demand we have seen for equity dividend, real estate and other income-focused
strategies in the post-crisis period.
Valuation support for equities - if interest rates are structurally lower, then this has
implications for equities. At one level, it is clear that bonds compete with equities as a
destination for investor funds, so other things equal, lower bond yields support equities
on a relative basis - this is encapsulated in the Fed model comparison of bond yields to
earnings yields (Chart 10 below) and the equity risk premium perspective (see
Appendix Chart 3), both of which suggest equities are cheap versus bonds.
“In today’s low interest rate
world, I think equity markets
are a good place to look for
investors seeking an attractive
level of income.”
Michael Clark, Portfolio
Manager, European and UK
Equities
Chart 11: The Fed Model: low bond yields support equities’ relative value
14.0
US Earnings yield (%)
12.0
US 10 yr Treasury yield (%)
“In the continuing low rate
environment, attractive and
reasonably priced income
alternatives have diminished
but selected commercial real
estate markets still offer some
compelling opportunities.”
10.0
%
8.0
6.0
4.0
2.0
0.0
1987
1991
Source: Datastream, October 2015
1995
1999
2003
2007
2011
2015
Keith Sutton, Portfolio Manager,
European Real Estate
Intuitively too, in a secular stagnation world, the presence of excess capital combined
with the ongoing hunt for real yields will tend to support equity valuations. From an
equity corporate finance perspective, equity cash flows are discounted using the
weighted average of cost of capital (WACC) for equity and debt, the primary sources of
funding. Structurally lower rates support the case for lower WACCs and higher
valuations compared to history.
Support for real estate as an asset class - as evidenced by Chart 12, real estate is
an asset class with a traditionally high proportion of total returns coming from the
income component. In addition as shown in Chart 13, a key advantage of real estate
income returns is their typically low volatility. In a world of low growth and low interest
rates, the income dominance and income stability of real estate becomes especially
attractive for investors, supporting the case for a re-rating of the asset class.
Chart 12: Income - a key driver of real estate returns
Prime European All Property
Income return v Capital returns - % pa 1981 to 2014
30.0
10.0
20.0
8.0
10.0
6.0
Prime Europe ex UK and Moscow All Property
Income Return v Capital Growth 9.2
average % pa 1981 to 2014
6.5
6.2
% pa
% pa
40.0
Chart 13: The stability of the income in real estate
0.0
4.0
-10.0
2.0
-20.0
0.0
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Income Return
Source: Jones Lang Lasalle, May 2015
0.7
Income Return
Capital Growth
Volatility of Capital Growth Volatility of
income
capital
component
component
Source: Jones Lang Lasalle, May 2015
Support for blended lower-volatility approaches to income generation - low
interest rates and scarcer sources of income also support the idea of a blended crossasset approach for investors with a lower risk appetite. A multi-asset approach can
provide a blended income stream from a range of assets, with overall volatility that is
lower than that associated with investing in single asset classes.
Support for detailed company analysis - If lower discount rates are used by
investors to reflect structurally lower interest rates, then as noted above, this supports
higher equity valuations. However, at lower discount rates the sensitivity to cash flow
changes is also magnified. From an analytical perspective, this underscores the value
that can be extracted from accurate cash flow forecasting and from detailed bottom-up
company analysis.
A premium for growth and innovation - while secular stagnation and sustained low
rates support the case for equities and equity income, it also puts a premium on
genuine growth wherever it can be found. Indeed, structurally lower economic growth
and low rates magnify the attractions of companies that are most adept and proven at
delivering robust earnings growth. In a sustained low-growth, low-rate environment,
the case for a market premium for companies achieving this is plain. In recent years, it
is also notable that the companies that have been the best at achieving this (e.g.
Facebook and Google) have tended to be relatively ‘capital-lite’ and focused on
structurally growing consumer markets, with a clear edge in terms of innovation. These
companies tend to be found in the intellectual-property sectors of technology, media
and healthcare.
Enhanced case for active investing - If the potential value of differentiating between
companies and investments increases in a secular stagnation world of low growth and
low interest rates then this supports the case for active investing approaches. This is
especially the case where managers can demonstrate genuine ‘activeness’ (as
measured by active share ratios for example) coupled with genuine security-selection
skill.
“In a low-yield world, a multi-asset
income approach that invests in a
range of assets with different
yield, volatility and inflation
characteristics can be an
effective means of achieving a
stable and competitive income.”
Eugene Philalithis, Portfolio Manager,
Multi Asset Solutions
CONCLUSION
The secular stagnation theory provides a highly plausible explanation for the extended
observed period of low economic growth, low inflation and low interest rates in many
developed economies. According to the theory, these conditions are the result of a
structural excess of global savings over global investment, which implies slower
growth and necessitates low interest rates to equilibrate the imbalance. The case for
structurally high global savings is supported by demographics, specifically the rise
of ‘prime savers’, rising global income inequality and the growth in emerging market
savings. The drivers of structurally low global investment meanwhile are the
declining relative price of investment goods, the reduced capital intensity of
companies, declining working age populations and the rise of corporate pay-outs.
If the secular stagnation hypothesis is correct, then policy makers and investors must
carefully consider the implications. On the economic front, it argues for steps to
moderate income inequality and for more balanced and less export-reliant economic
growth in emerging markets. On the investment front, secular stagnation implies that
interest rates and bond yields will stay low compared to history, and that demand for
sustainable income strategies (including via more multi-asset approaches) will
continue to grow. Secular stagnation and the presence of excess capital provide
valuation support for equities and especially for those companies most adept at
delivering growth and innovation. Finally, if as we believe, investment differentiation
becomes more important in a world of secular stagnation, then this argues
convincingly for the use of discriminating active investment strategies.
“If investors subscribe to the secular stagnation and savings-glut theories as I
do, and accept that we are likely to remain in an excess capital environment
that keeps yields low, then portfolios should be reviewed to focus on longduration assets that provide real returns and reliable incomes. This argues for
buy-and-hold equity and real estate strategies that allow for the reinvestment
of dividend and rental income distributions.”
Dominic Rossi, CIO Equities
APPENDIX
Annual nominal GDP growth (%)
Chart A1: Nominal local currency G6 countries GDP growth
12
12
10
10
8
8
5-year average of G6 countries' nominal GDP
growth
6
6
4
4
G6 countries' nominal GDP
growth
2
2
0
0
-2
-2
-4
1980
-4
1984
1988
1992
1996
2000
2004
2008
2012
2016
Source: Minack Advisors, September 2015; Note: GDP growth rates are nominal and in local currency and weighted by USD
GDP size for the US, Europe, Japan and the UK. Pre 1996 period, Germany, France and Italy are used for Europe. Shaded
areas depict US Recession periods.
Chart A2: Trend level of nominal GDP growth in G6 countries
5-year average nominal GDP growth
(%)
12
12
10
10
8
8
US, Europe and UK
6
6
4
4
2
2
Japan
0
0
-2
1980
-2
1984
1988
1992
1996
2000
2004
2008
2012
2016
Source: Minack Advisors, September 2015; Note: Both lines depict average nominal GDP growth in nominal terms and in
local currency and weighted by USD GDP size for the US, Europe, Japan and the UK. Pre 1996, Germany, France and Italy
are used for Europe. Shaded areas depict US Recession periods.
Chart A3: Implied Equity Risk Premium
7.00%
6.00%
The current Equity Risk Premium of
5.90% is well above the LT average of
4.11% (dotted black line)
5.00%
4.00%
3.00%
2.00%
1.00%
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Aug-15
0.00%
Implied Equity Risk Premium
Source: Aswath Damoradan, Stern Business School, New York University, August 2015.
REFERENCES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Speech at IMF Fourteenth Annual Research Conference in Honour of Stanley Fisher, Larry Summers, 8
November 2013
‘Secular stagnation, demographics and low real rates’, Global Economics Weekly, Sharon Yin, Goldman Sachs,
February 2015
‘Capital in the Twenty-First Century’, 2013, Thomas Piketty
‘The global savings glut and the US current account deficit’, Ben Bernanke, March 2005
Using national income accounting, it is possible to demonstrate the equivalence of the current account balance
and savings (and net capital inflows). Specifically, the national income accounts treat gross national product
(GNP) as the sum of income derived from producing goods and services under the following categories: private
consumption (C), private investment (I), government goods and services (G), and exports (X). Imports (M) are
treated as a negative item to avoid the double counting of consumption or investment goods purchased at home
but produced abroad. Thus:
GNP= C+I+G+ (X-M)
A second basic equation in the national income accounts is based on the insight that any income received by
individuals has four possible uses: it can be consumed (C), saved (S) for private savings), paid in taxes (T), or
transferred abroad (Tr). Because GNP is simply the sum of income received by all individuals in the economy,
we have:
GNP= C+S+T+Tr
By equating the two expressions for GNP:
So C+I+G+(X-M) = C+S+T+Tr
Cancelling out C:
So (X-M) = S+T+Tr-I-G
and rearranging the terms, we derive the following equation:
So (X-M) – Tr = (S-I) - (T-G)
This says the current account balance [(X-M) – Tr] is equal to the surplus of private savings over investment
(S-I) and the gap between government tax receipts and government expenditure on goods and services (T-G),
that is, the government budget balance or ‘government saving’.
Data source: US Department of the Treasury, September 2015
‘Why are real rates so low? Secular stagnation and the relative price of investment goods’, Gregor Thwaites,
London School of Economics and Bank of England, January 2015
‘Why invest?’, Down Under Daily, Gerard Minack, June 2015
In most models of long term economic growth, such as the Solow Model, economic growth is a function of 1)
labour supply 2) capital growth and 3) technology (sometimes called ‘Total Factor Productivity’)
‘The world’s 50 biggest cash cows’, Citi Research, May 2015
In the US for example, according to Federal Reserve data, the capacity utilisation rate in July 2014 was 78.0%,
2.1 percentage points lower than the long term (1972-2014) average of 80.1%
In the UK for example, in July 2015 the UK government announced a substantial 11% increase in the ‘Living
Wage’ for over-25s to £7.20 per hour.
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IC15-106