As employment growth slows or goes into reverse in most developed economies, GDP growth will have to increasingly come by way of productivity gains, says RBC Harbour Group. For equity investing, this raises a number of issues. To start, there would be even greater intensity of corporate competition. When the total economic pie is growing more slowly than it has been, then each individual business has to work that much harder to maintain its share of the pie let alone gain share. In such a scrap, the biggest and strongest will likely come out on top, but the second- and third-tier competitors are not going to simply lie there and accept their fate. A second inevitable consequence of an extended stretch of much slower growth would be more protectionism. That trend emerged in the last half of the prior decade and now a growing list of countries and companies, shaken by the unexpected fragility of global supply chains, are moving toward mandating and building out greater domestic capacity for everything from vaccines and other biotechnologies to computer chips and defense procurements. Building more domestic capacity may be good for capital spending for a few years, but any response of restrictive trade barriers could take a toll on the sales and foreign earnings of exporters and multinationals.
- PWC