The New Growth Conundrum

PARIS – For most governments, the rate of economic growth that can reasonably be expected in the coming years is a key question. And, at least for the advanced economies, it has become a particularly puzzling one.

If the past is a good predictor of the future, the outlook is bleak. Since 2008, economic growth has consistently disappointed expectations. Of the countries most affected by the financial crisis, only a few – the United States, Germany, and Sweden – have rediscovered the path to sustained growth. Yet, even for them, GDP in 2013 was far below the level projected prior to the crisis.

The consensus view among economists and policymakers is that the financial crisis and the euro crisis have damaged both demand and supply, but that a gradual healing process has begun.

On the demand side, according to this view, the hangover from pre-crisis private indebtedness and crisis-generated public indebtedness still weighs on domestic demand. This is likely to persist for several more years, though the burden will diminish steadily. Gradually, consumers will start spending and investing again (as is becoming the case in the US), and fiscal policy will become neutral again (as is already the case in Germany).