The trend gross domestic product (GDP) growth rate of 3 percent a year that has prevailed for the last century is a thing of the past, says Jeremy Grantham, chief investment strategist at money manager GMO.
So what’s going to set us back to such a mediocre rate?
“Population growth that peaked in the U.S. at over 1.5 percent a year in the 1970s will bob along at less than 0.5 percent,” he writes in his quarterly commentary.
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“Growth in service productivity is low and declining.” Total productivity growth will be just 1.3 percent through 2030, Grantham says.
Resource costs will rise, he predicts. "If resources increase their costs at 9 percent a year, the U.S. will reach a point where all of the growth generated by the economy is used up in simply obtaining enough resources to run the system."
Grantham isn’t too impressed with Federal Reserve Chairman Ben Bernanke.
“Investors should be wary of a Fed whose policy is premised on the idea that 3 percent growth for the U.S. is normal,” he writes. “Remember, it is led by a guy who couldn’t see a 1-in-1,200-year housing bubble!”
Not everyone shares Grantham’s pessimism, especially when it comes to the short term.
Dean Maki, chief U.S. economist for Barclays, forecasts that third-quarter GDP will be revised upward to 2.9 percent from 2 percent initially, Bloomberg reports. And he sees 2.5 percent growth in the fourth quarter.
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