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Economy

Why are the rich world’s politicians giving up on economic growth?

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The prospect of recession may loom over the global economy today, but the rich world’s difficulties over growth are graver still. The long-run rate of growth has dwindled alarmingly, contributing to problems including stagnant living standards and fulminating populists. Between 1980 and 2000, gdp per person grew at an annual rate of 2.25% on average. Since then the pace of growth has sunk to about 1.1%.

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Although much of the slowdown reflects immutable forces such as ageing, some of it can be reversed. The problem is that, as we write this week, reviving growth has slid perilously down politicians’ to-do lists. Their election manifestos are less focused on growth than before, and their appetite for reform has vanished.

The latter half of the 20th century was a golden age for growth. After the second world war, a baby boom produced a cohort of workers who were better educated than any previous generation and who boosted average productivity as they gained experience. In the 1970s and 1980s women in many rich countries flocked into the workforce. The lowering of trade barriers and the integration of Asia into the world economy later led to much more efficient production. Life got better. In 1950 nearly a third of American households were without flush toilets. By 2000 most of them could boast of owning at least two cars.

Many of those growth-boosting trends have since stalled or gone into reverse. The skills of the labour force have stopped improving as fast. Ever more workers are retiring, women’s labour-force participation has flattened off and little more is to be gained by expanding basic education. As consumers have become richer, they have spent more of their income on services, for which productivity gains are harder to come by. Sectors like transport, education and construction look much as they did two decades ago. Others, such as university education, housing and health care, are lumbered with red tape and rent-seeking.

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Ageing has not just hurt growth directly, it has also made electorates less bothered about gdp. Growth most benefits workers with a career ahead of them, not pensioners on fixed incomes. Our analysis of political manifestos shows that the anti-growth sentiment they contain has surged by about 60% since the 1980s. Welfare states have become focused on providing the elderly with pensions and health care rather than investing in growth-boosting infrastructure or the development of young children. Support for growth-enhancing reforms has withered.

Moreover, even when politicians say they want growth, they act as if they don’t. The twin problems of structural change and political decay are especially apparent in Britain, which since 2007 has managed annual growth in GDP per person averaging just 0.4% (see Britain section). Its failure to build enough houses in its prosperous south-east has hampered productivity, and its exit from the European Union has damaged trade and scared off investment. In September Liz Truss became prime minister by promising to boost growth with deficit-financed tax cuts, but succeeded only in sparking a financial crisis.

Ms Truss fits a broader pattern of failure. President Donald Trump promised 4% annual growth but hindered long-term prosperity by undermining the global trading system. America’s government introduced 12,000 new regulations last year alone. Today’s leaders are the most statist in many decades, and seem to believe that industrial policy, protectionism and bail-outs are the route to economic success. That is partly because of a misguided belief that liberal capitalism or free trade is to blame for the growth slowdown. Sometimes this belief is exacerbated by the fallacy that growth cannot be green.

In fact, demographic decline means that liberal, growth-boosting reforms are more vital than ever. These will not restore the heady rates of the late 20th century. But embracing free trade, loosening building rules, reforming immigration regimes and making tax systems friendly to business investment may add half a percentage point or so to annual per-person growth. That will not put voters in raptures, but today’s growth is so low that every bit of progress matters—and in time will add up to much greater economic strength.

For the time being the West is being made to look good by autocratic China and Russia, which have both inflicted deep economic wounds on themselves. Yet unless they embrace growth, rich democracies will see their economic vitality ebb away and will become weaker on the world stage. Once you start thinking about growth, wrote Robert Lucas, a Nobel-prize-winning economist, “it is hard to think about anything else”. If only governments would take that first step.

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Economy

Rates may have peaked, but economy remains fragile – BBC

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Rates may have peaked, but economy remains fragile  BBC

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Economy

Rates may have peaked, but economy remains fragile

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City of LondonGetty Images

The immediate recession should be milder and shorter than previously expected, as energy prices fall, and interest rates do not rise as high as previously expected.

That picture is reinforced by the Bank’s decision while raising official interest rates to 4%, to remove hints that they might go much higher. For the first time in this series of 10 consecutive rises, the language suggests that the job might be done, or very nearly done.

Further rate rises are no longer presumed. The peak in interest rates could be imminent.

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While this is still consistent with the energy shock recession lasting through this year and into next, it is far shallower and does not last as long as the two-year downturn previously predicted.

But on the other side, the recovery out of this downturn in the next few years is expected to be very sluggish indeed.

The Bank assesses that Brexit, the pandemic and the energy shock has led to an enduring hit to the economy. The workforce has not returned to its pre-pandemic size, unlike other major economies. This is mainly down to early retirements and therefore is likely to prove permanent. Fewer EU workers in key sectors suffering shortages also plays a part.

The Bank has also reassessed post-Brexit goods trade data, and concluded that the hit is notably more than suggested by official data. It believes that the expected fall in UK productivity after Brexit “might have occurred more quickly than previously assumed”.

In addition business investment – the key to boosting the economy in the long term – remains “very subdued” well below pre-referendum levels, hit by both Brexit and the pandemic.

Throw that all together and an economy that is still smaller now than it was before the pandemic and Brexit, might not exceed that size until early 2026, according to this new analysis. The promised “roaring” 2020s is looking more like a lost half-decade at least.

So the good news is that the immediate shock should be milder, with inflation, energy prices and interest rates higher than they were, yes, but now on a lower path than previously expected. But the shocks have left an enduring mark on the economy.

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London’s downtown comeback leads the nation. Research credits an economy that’s ‘not very sexy’

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Nearly three years after the pandemic hit, activity in London, Ont.,’s downtown core is at about 79 per cent of its pre-pandemic levels, making it the leader among all Canadian cities and 13th overall in North America, according to a new update to a study called “Death of Downtown?

The research was co-produced by the University of Toronto and the University of California, Berkley. Researchers used cell phone data to infer the position of users when they stopped at places such as retail stores, public parks, workplaces and restaurants in 62 cities from June to November 2022 and compared it to the same time frame in 2019.

The new data suggests activity in London’s core has returned to 79 per cent of its pre-pandemic levels — the highest in Canada and 13th overall across the continent, ahead of such cities as Las Vegas, New York, Ottawa, Toronto and San Francisco.

London’s strong showing was a “surprise,” according to Karen Chapple, a professor emerita in geography and the director of the University of Toronto’s School of Cities, who visited the city’s core to see for herself what was behind the robust turnaround.

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London’s economy ‘is not very sexy at all’

“London, oddly, was very lucky that it didn’t rely on professional services and tech employment. So London has an economy that is not very sexy at all, and that has made it very resilient. It’s very ironic.”

A large number of single-family homes close to the downtown and 500 units in new residential towers that have recently come online have helped propel activity in the core to levels higher than most cities in the country, according to the study. (Colin Butler/CBC News)

Instead, Chapple said, London has construction work in the form of three or four residential highrises taking shape on the city’s downtown skyline, a vibrant retail sector and healthcare workers downtown.

Those sectors, in combination with a large number of single-family homes close to the downtown and 500 units in new residential towers, have helped propel activity in the core to levels higher than most cities in the country, she said.

The study is much more positive than some of the recent dour commercial realty data, including reports that suggest one in four downtown London offices remains empty, prompting studies on whether they can be converted into housing and starving businesses that have relied on the once ample foot traffic for decades.

“This has been decades in the making and likely not pandemic-induced,” she said.

Unlike commercial real estate reports, Chapple said, the study is far broader in scope, measuring where and when cell phone users stop in the downtown, whether at work or play.

“We’re measuring activity overall, not just office space, so all workers of all types, and we’re measuring visitors walking around and residents,” she said. “I think our study is a bigger picture view of activity downtown, and it gives me a little more hope.”

Study doesn’t measure homelessness, crime

Homelessness, addiction and crime are also issues in downtown London, but not something the study looked at specifically, Chapple said, adding the presence of social problems in a central business district seems to have little effect on whether a city successfully revives its downtown or not.

Homelessness, addiction and crime are also issues in downtown London, but not something the study looked at specifically, Chapple said. (Colin Butler/CBC News)

“If we did get that data, I don’t think we would see a strong correlation.”

“If you look at homelessness and crime, you see they can be high in cities that came back, and they can be high in cities that didn’t come back,” noting Baltimore, San Francisco, and New York are but a few examples.

Barbara Maly, the executive director of the London Downtown BIA, said part of what makes downtown so resilient is the number of “anchors” downtown, such as the Grand Theatre, Budweiser Gardens, the Covent Garden Market and the eclectic shops and restaurants along Dundas Place or Richmond Row that make downtown a destination.

“We’ve definitely seen a strong return,” she said. “I think because of that diversity, because of those anchors and community spots, I think that’s where we’ve benefited.”

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