Monday, 27 October 2014

Has the UK been under secular stagnation since the early 1960s?

Yesterday, Gavyn Davies at the Financial Times posted about the idea of secular stagnation, writing:
The slowdown in long run growth in the developed economies therefore seems to have become a permanent fact of life, rather than a temporary result of the financial crash that will disappear over time.
In the post, he discusses a new research paper, which shows that long-run GDP growth rates in the G7 countries have been decreasing monotonically since the early 1960s. And in this vein, he notes that:
Averaged across the G7, the slowdown can be traced to trend declines in both population growth and (especially) labour productivity growth, which together have resulted in a halving in long run GDP growth from over 4 per cent in 1970 to 2 per cent now.
However, looking at data from the UK in particular, there doesn't seem to be much evidence of secular stagnation in GDP per capita. As the chart below indicates, the linear trend in the growth rate of real GDP per capita between 1961 and 2007 is essentially flat; only when the post-crisis years are included does the slope of the line fall below zero. One possible response is that growth was artificially elevated during the pre-recession boom period. Yet the dashed line would not look any different if it only went up to 2001 or 2002; growth during the mid-2000s was about equal to average growth over 1961-2007.

To be fair to Mr Davies, he does admit that the slowdown "looks more persistent for the G7 as a whole than it does for individual countries, where there is more variation in the pattern through time." 

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