The U.S. will be stuck in a permanent slow-growth mode of about 1.4% per year, says Jeremy Grantham, GMO chief investment strategist.
“The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever,” Mr. Grantham wrote in a quarterly update today.
“When the debt is repaid and housing is normal and Europe has settled down, most business people seem to expect a recovery back to America's old 3.4% [real] growth trend, or at least something close. They should not hold their breath,” he wrote.
Driving the permanently lower growth rates are several long-term trends, Mr. Grantham said. At the top of the list: Lower population growth of less than 0.5%, which is down from more than 1.5% since the 1970s. The GMO strategist also pointed to low and declining growth in service productivity, as well as rising resource costs. In addition, he cited lackluster growth in man-hours worked annually, which he estimates will rise only 0.2% a year.
“Attitudes to change are sticky,” Mr. Grantham said. “We cling to the idea of the good old days with enthusiasm. When offered unpleasant ideas (or even unpleasant facts) we jump around looking for more palatable alternatives.”