Long-Term Outlook Deteriorates for G-7 Countries

Seven years on from the global financial crisis, G-7 and Western European activity continues to cruise at relatively modest speed. US and UK labour markets appear to be on firmer footing now, while even the Euro area is showing signs of a modest pickup after the debt crisis a few years ago. However, the inability of investment spending to expand significantly, even with monetary conditions still extremely accommodative, is a major concern for policymakers. Without an acceleration in private investment, job creation will remain weak, productivity will moderate, and GDP will stay muted, unable to deliver either the fiscal receipts or the growth necessary to cover public spending commitments or generate better opportunities for current and future generations. The Fed stopped active QE last year, but the European Central Bank and Bank of Japan have continued with regular liquidity injections in their bids to support domestic demand. Without structural reforms, growth rates cannot be lifted. Creeping demographic challenges in Japan and Western Europe mean that as the post-war baby-boom generation retires, a smaller working population will have to support them.

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