Ultimately, the long term health and sustainability of any economic expansion hinges on productivity growth
Ultimately, the long term health and sustainability of any economic expansion hinges on productivity growth. Indeed, productivity growth is true wealth creation, it underpins long term growth in corporate profits and sits squarely at the heart of the longevity of the economic cycle. In the UK, productivity is unchanged since the GFC, having collapsed during the crisis. If it doesn't accelerate soon, the economy is likely to lose momentum as rising wage inflation squeezes corporate margins. While the outlook for productivity is therefore critical, it's also a source of much debate and contention in markets. In particular, the question is whether or not the corporate sector is able/willing to re-leverage and invest in future productive capacity. If it is- then the downtrend in capital intensity and productivity should reverse. If not- the UK risks a re-run of the late-1970s (i.e. a time of de-leveraging, weak investment spending and poor productivity).