Investment

Chart of the Month – Drivers of US GDP growth: Can the US grow faster?

by Angel Sanz

DRIVERS OF US GDP GROWTH: CAN THE US GROW FASTER?

Source: BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between 4Q of the first and last year. Future working age population is calculated as the total estimated number of Americans from the Census Bureau, controlled for military enrollment, growth in institutionalised population and demographic trends
Source: BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between 4Q of the first and last year. Future working age population is calculated as the total estimated number of Americans from the Census Bureau, controlled for military enrollment, growth in institutionalised population and demographic trends

Before the US election, the consensus view was that potential growth for the US economy was about 1.5% – 2.0%. After Trump won the elections, many market players are discounting higher growth rates due to the coming deregulation and fiscal stimuli. Whether this potential growth is 1.5% or 3.0% has very important implications in the capital markets, so it is worthy to review the main drivers of growth and what we can expect.

The chart shows the two sources of GDP growth, and unfortunately what we see is a deceleration in the growth rate during the last decade that might continue during the next decade also:

  1. Growth in workers.
    1. Natality rate has been decreasing over time, so the previous disappointing trend of lower birth rate is likely to continue.
    2. Immigration rate, if properly controlled, has been an important source of growth in countries like the US, Australia, UK or Switzerland to name a few successful ones. If UK or USA reduce the immigration rate, chances are that this source of growth decreases during the next decade. It would be especially bad for the US to restrict immigration for the high skillful people who would go to the USA to work for the Information Technology industry.
  2. Growth in real output per worker. First of all, it sounds counterintuitive that productivity has increased at a lower rate during the last “information age” decade. We are not going to talk about this as there are a lot of good academic papers that covers this issue without a definitive conclusion, but facts are facts, and productivity growth is running at the lowest Post-WW2 level.
    1. Capital investments: Good capital investments in infrastructure, IT, etc. increase real output per worker. The infrastructure investments that will be done by the Trump administration will certainly contribute to higher productivity in the USA.
    2. Regulations: Red tape and excessive bureaucracy are deterrents of GDP growth. The Trump administration will improve this.
    3. Human capital: This is one of the most neglected part of the sources of GDP growth even though is evident to most people (we all spent a lot of money on our children’s education). In the Trump’s agenda there is no indication that the US will be spending more money on human capital. A very interesting idea is to promote the vocational school system in place in countries like Germany, Austria or Switzerland where productivity is good and unemployment is low, even in the sectors exposed to globalization.

Free International Trade: It is difficult to introduce this element in the chart, but according to most academic studies since Ricardo, Free International Trade is mutually beneficial to everybody. That is why WTO has been so successful and that is why the European Union started with 6 countries and went to 28 (likely to go to 27 after Brexit).

The summary of these considerations can be:

  • GDP growth enhancers: Infrastructure investments and lower regulations.
  • GDP growth deterrents: Immigration policy and less international trade.
  • GDP growth neutral: Similar natality rate and no changes in the educational system.

Depending on the magnitude of those policies, we will see the impact on the coming GDP growth, and honestly we do not know at this stage, but is good to have a handy framework with the relevant variables.

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Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Romain Pidoux, CAIA

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Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

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