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Escaping the New Normal of Weak Growth

Eight years after the crisis erupted, what the global economy is experiencing is starting to look less like a slow recovery than like a new low-growth equilibrium. With monetary policy unable to stimulate demand, or even inflation, it's time for fiscal authorities to relieve the burden on central banks.

MILAN – There is no question that the recovery from the global recession triggered by the 2008 financial crisis has been unusually lengthy and anemic. Some still expect an upswing in growth. But, eight years after the crisis erupted, what the global economy is experiencing is starting to look less like a slow recovery than like a new low-growth equilibrium. Why is this happening, and is there anything we can do about it?

One potential explanation for this “new normal” that has gotten a lot of attention is declining productivity growth. But, despite considerable data and analysis, productivity’s role in the current malaise has been difficult to pin down – and, in fact, seems not to be as pivotal as many think.

Of course, slowing productivity growth is not good for longer-term economic performance, and it may be among the forces holding back the United States as it approaches “full” employment. But, in much of the rest of the world, other factors – namely, inadequate aggregate demand and significant output gaps, rooted in excess capacity and underused assets (including people) – seem more important.

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