Economic Growth

Secular stagnation or regular recession?

Matthew Salter

One of the major themes in the investment world at the moment is the question of whether the current period of slow global growth is the recovery from a regular recession – albeit a more drawn out one than an average recession – or a new phenomenon that has been termed “secular stagnation.” (Or even “SecStag” if you want to sound like you really know what you’re talking about).

The facts are that more than five years after the global financial crisis, average growth in the global economy remains modest and growth rates of the largest developed countries remain at historically low levels, even in some cases coming close to recessionary rates of growth. (While the US has shown some positive signs over the last two quarters of returning to more ‘normal’ growth rates, the overall growth for 2014 is still likely to remain below the long-term historical average).

The important question for the investment world (or in fact the world at large) is whether this is a new prolonged era of economic growth that will be characterized by countries converging to historically low trend rates of potential growth with low inflation and close to zero percent neutral real policy rates for many years to come. Or is the world simply going through a slightly longer recessionary phase than has been seen historically, from which it will emerge in the next couple of years to a ‘business as usual’ scenario?

This is by no means a thesis on the subject, rather a short informative essay on the main characteristics of the two lines of thought, a look at who are the proponents of each and the (possible) investment implications for the two outcomes.

To read more go to the Seeking Alpha website

Publication does not imply endorsement of views by the World Economic Forum. 

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Author: Matthew Salter is an independent consultant

Image: Image: A man looks at a stock quotation board outside a brokerage in Tokyo May 11, 2012. REUTERS/Toru Hanai

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