While GDP growth has slowed over the past decade, it was the three per cent rate of the previous 40 years that was exceptional, says Patrick Palfrey, associate strategist, U.S. equity strategy, at RBC Capital Markets. As a result, as long as business believes growth will remain tepid, companies will make long-term plans based on what may be incorrect economic assumptions. He explained the growth of the previous four decades, in the session ‘Scarcity of Growth’ at the ‘2015 PRMIA Canadian Risk Forum,’ was due in part to the influx into the labour force of women that created the historic high growth rates. Between the ’60s and ’90s, the number of women in the labour force doubled. This created the additional productivity that drove up GDP numbers. And while some blame the financial crisis for the slowdown in growth, it had started even before that. In the ’90s, men and women started to drop out of the labour force or started working less because of government policies which disincented them to work. The other factor is China. Unlike developed countries where consumption accounts for 66 per cent of GDP, China has about 50 per cent of GDP from investment and consumption is 25 to 28 per cent. It has slowed its investment activities, but this has reduced demand for resources and commodities resulting in a softening of their prices. This slowing global growth may have greater implications than many people expect. Business needs to make sure economic models reflect the current environment. New models are needed, he said, as businesses are making decisions often based on assumptions made in past that no longer work.
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