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BUSINESS GUARDIAN guardian.co.tt MARCH 2 • 2017
Buckle up for
rapid US growth
Most forecasters believe
the Trump adminis-
tration's estimates of
3.0 per cent to 3.5 per
cent annual real gross
growth in the next decade are far too rosy.
The nonpartisan Congressional Budget Of-
fice foresees 1.9 per cent per year between
2021 and 2027, and the Federal Reserve ex-
pects 1.8 per cent annually in the long run.
These differences aren't trivial.
Growth at 3.5 per cent per year rather
than 1.8 per cent would make the economy
18 per cent bigger over a decade. It also would
involve reducing federal budget deficits by
cutting spending on programs such as food
stamps and unemployment insurance while
boosting taxable personal and corporate in-
Pessimists point to the ironclad law of
economic growth: annual increases in em-
ployment plus productivity growth equal
yearly gains in economic output.
Aging and retiring postwar babies, as well
as President Donald Trump's anti-immigra-
tion policies, will severely limit labour force
growth, they maintain. And output per hour
worked, which gained about 2.5 per cent a
year in earlier decades, has risen just 0.5 per
cent annually in the 2010-2016 years.
Some blame weak capital spending while
others foresee no big productivity-soaked
new technologies coming along to propel
productivity because everything worth in-
venting is extant. Malthus is alive and well.
At the opposite end of the spectrum are those
who believe robots will replace people to the
point that there will be too few earners to
buy the nation's output.
Some experts disagree.
Consider the bias of most forecasters to-
ward slow growth forever. Since this busi-
ness expansion started in mid-2009, real
GDP growth has averaged a mere 2.1 per
cent despite the Federal Reserve's cuts in
short-term interest rates to zero and huge
So the tendency of most is to assume that
this pattern will last indefinitely and they
select evidence to substantiate that view.
It's the easiest forecast to sell as forecasters'
audiences readily agree because it matches
their ongoing experience.
Still, the ironclad law of economic growth
is actually quite pliable. Real GDP annual
growth of 3.5 per cent would occur with
2.5 per cent yearly growth in productivity
and one per cent rises in employment, the
True, with low fertility rates, the Census
Bureau sees the US population rising just
0.2 per cent a year by 2026, even with net
immigration of 1.3 million annually over the
Nevertheless, the labour participation
rate---the percentage of the population over
16 that is employed or actively looking for
work---had plummeted to 62.9 per cent in
January from the 67.3 per cent peak 17 years
earlier. So 4.4 per cent of the potential work-
force, or 11.3 million people, have departed.
About 60 per cent were retiring postwar
babies, but many are returning or staying in
jobs past normal retirement ages because
their health is better than their predecessors'
and because they need the income.
Postwar babies have been notoriously poor
savers throughout their lives. The participa-
tion rates of those over 65 are actually rising,
not falling, as is normally true for seniors.
Also increasingly looking for work are
youths who stayed in school during the dark
Great Recession years and are now better
educated and attracted by expanding job
In addition, skills to meet available jobs
are being provided by apprenticeship pro-
grammes that combine two-year college
degrees with on-the-job training. German
manufacturers brought this system with
them to their factories in the US South-
west, and it is increasingly being emulated
by US firms.
Trump's threats of mass deportation of
undocumented immigrants have been scaled
back. They now target those with criminal
records and other suspects. And with cooler
heads in Congress, US immigration policy
may end up mirroring Canada's with a point
system aimed at admitting those with the
skills this country needs.
Trump's planned deregulation and lower
corporate tax rates may spur capital spend-
ing, but the correlation between the growth
in capital expenditures and productivity
gains is low, sometimes negative.
More machines alone don't spur efficien-
cy. More important, productivity-enhanc-
ing new technologies grow explosively, but
since they start from essentially zero, it takes
decades before they move the productivity
China to target around
6.5% growth in 2017
China will lower its 2017 economic growth target
to around 6.5 per cent from last year's 6.5-7 per cent,
policy sources said, reinforcing a policy shift from
supporting growth to pushing reforms to contain
debt and housing risks.
The proposed target was endorsed by top leaders
at the closed-door Central Economic Work Confer-
ence in mid-December, according to four sources with
knowledge of the meeting outcome.
"The target will be around 6.5 per cent, which indi-
cates that slightly slower growth is acceptable," said
one of the sources, a policy adviser.
The State Council Information Office, the public re-
lations arm of the government, declined to comment.
The world's second-largest economy likely grew
around 6.7 per cent last year---roughly in the middle
of the government's target range---but it faces increas-
ing uncertainties in 2017, the head of China's state
planning agency said on Jan 10.
Policy stimulus measures---evident in record lend-
ing from mostly state-owned banks and increased
government spending---have fuelled worries among
top leaders about high debt levels and an overheating
housing market that could threaten financial stability
if not addressed, the sources said.
Under the central bank's recently announced
"prudent and neutral" stance, it is expected to guide
market interest rates higher to help put the brakes on
flush credit conditions, which should also support
the weakening yuan CNY=CFXS, the sources said.
"They've put more emphasis on controlling risks,
and monetary policy could be a bit tighter," said a
second policy source, though he characterised the
change as 'fine-tuning' ahead of a key party meeting
in the autumn at which there will be a change in the
"They are keen to keep economic growth stable
before the 19th party congress," the source said.
Top leaders have pledged to stem the growth of
asset bubbles in 2017 and place greater importance
on the prevention of financial risk, while keeping
the economy on a path of stable and healthy growth.
China's banks doled out a record 12.65 trillion yuan
(US$1.84 trillion) of loans in 2016 as the government
encouraged more credit-fuelled stimulus to meet its
economic growth target, despite worries about the
risks of an explosive jump in debt.
Reform vs growth
The economy needs to grow at least 6.5 per cent
between 2016 and 2020 to meet Beijing's goals of
doubling GDP and per capita income by 2020 from
But they have also pledged "decisive results" by
2020 on a wide range of reforms to let market forces
play a bigger role in driving the economy away from
inefficient state-owned enterprises, which in the
short term could slow output.
Last year's expected growth of 6.7 per cent, though
the slowest in 26 years, will have given the government
a little more room to manoeuvre, but Beijing will not
tolerate a sharp slowdown ahead of the leadership
transition, the policy sources said.
The 2017 growth target will be announced at the
annual meeting of the National People's Congress,
the country's parliament, in early March. Reuters
Indian economy slows in Dec 2016
India's economic growth slowed in the Decem-
ber quarter of 2016, but the pace of expansion
still beat expectations.
The 7.0 per cent rate was slower than the
previous quarter's rate of 7.4 per cent, but beat
analysts' expectations of 6.4 per cent.
Economists had expected the economy to suf-
fer from the government's decision to withdraw
high-denomination banknotes as part of an an-
The federal statistics office retained its growth
forecast for the year ending in March 2017 at 7.1
The figures surprised economists, who had
expected the economy to take a bigger hit from
Prime Minister Narendra Modi's decision last
November to withdraw old 500-rupee and
1,000-rupee banknotes, taking 86 per cent of the
currency out of circulation virtually overnight.
"Perhaps this data is not capturing the impact
of demonetisation," said Aneesh Srivastava, chief
investment officer at IDBI Federal Life Insurance.
"I am totally surprised and stunned to see this
number... I believe that, with a lag, we will see
an impact on GDP numbers."
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