Everyone is talking about a “new normal” these days; two prominent examples are Chinese president Xi Jinping in relation to the country’s slowing rate of GDP growth and IMF Managing Director Christine Lagarde’s “new mediocre” of low global growth. For me, a common but under-emphasised element of both of these is demographics. China’s workforce (although not its population) is now shrinking, and the same is happening in many other countries—mostly in Europe and Asia. When your workforce is shrinking, you need to have growth in productivity and in the capital stock just to stay still and avoid a permanent recession.
Japan is a great case in point. While it has had a decade of very low overall GDP, GDP per worker has been growing at a reasonable pace and Japanese living standards have not declined. In this kind of environment, we will need to reassess some of our conceptions of the economy—such as focusing on overall levels of GDP. We will also need to consider how pension systems and innovation need to change in a new normal of a declining workforce in more and more countries. The other big element here is immigration, but I’ll leave that one for another time!
What are your thoughts on the new mediocre? Let me know your thoughts on Twitter @Baptist_Simon or via email on firstname.lastname@example.org.