Does it matter if GDP does not recover?

Posted by: Paul Donovan

26 Jun 2020

Weekly Update

  • It is very likely that third-quarter GDP growth will be the fastest on record. After the weakest growth on record in the second quarter, it would be surprising if this were not the case. However, the level of GDP is likely to remain below the 2019 level until the end of 2021. That may not tell us very much about living standards.
  • The virus is likely to accelerate the changes of the fourth industrial revolution. This includes flexible working. In developed economies, somewhere between a third and half of jobs could be done from home. That will cut how much companies need to invest.
  • If people are working from home, employees will use the real estate, computers and furniture that they already have. Companies will not need to provide any of those things. The economy is working its stock of assets harder. A desk in an office is used on average 24 hours a week. Flexible working means that such underused assets can be scrapped.
  • Flexible working will allow companies to cut investment, which hurts GDP. However, living standards are not negatively affected. Company earnings should improve as costs fall. The fact that GDP is hurt by this more efficient use of assets is a good thing.

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