Could we get to an age of broad economic recovery?
Per capita GDP growth per year following crisis,¹ %
Source: Antoinin Bergeaud et al, “Productivity trends in advanced countries between 1890 and 2012,” Review of Income and Wealth, Sept 2016, Volume 62, Issue 3; McKinsey Global Institute analysis
Acceleration of
innovation and dynamism
(eg, digitization, automation,
new business models)
Unleashed and
broad-based
(eg, high consumption
and investment growth)
Little progress
(eg, sclerotic
markets, slow
innovation)
Constrained
Potential supply growth
Demand growth
US after the global
financial crisis,
2007–19
4. Low growth
and/or great divide
1.0
Japan after the real-
estate bubble burst, 1992–2002
3. “Lost decade”
or depression
0.7
2. Age of renewed economic progress
Europe and US
post–World War II,
1939–73
3.1
US post-oil
shock,
1973–83
1.3
1. Stagflation
In the 1970s, a combination of a supply shocks such as the OPEC oil embargo and expansionary fiscal and monetary policy produced “stagflation” – low output growth, high unemployment, and high inflation. The Federal Reserve raised interest rates sharply to tame inflation -- but at the cost of two recessions. Between 1973 and 1983, US annual GDP per capita growth was 1.3 percent.
1. Stagflation
Demand from rebuilding, government spending such as the Marshall Plan, and recovering household incomes combined with structural reform, industrialization, increasing skills, technology diffusion, and strong private investment lifted incomes and productivity. Across our seven focus economies, annual per capita GDP grew at 3.1 percent on average between 1939 and 1973.
2. Age of renewed economic progress
Signs of technological and other business-related progress emerged in the aftermath of the great financial crisis, but Europe and the United States experienced slow diffusion of supply-side advances and sustained output gaps. The outcome was a combination of sluggish growth and increased polarization – a great divide. In the United States, for example, GDP per capita grew annually only 1 percent between 2007 and 2019.
4. Low growth and/or great divide
Japan’s real estate bubble collapsed in 1992, leaving behind damaged balance sheets. What followed was a long period of deleveraging and deflation that successive rounds of fiscal and monetary stimulus failed to correct. The result was a “lost decade” when low business dynamism combined with weak private sector demand produced per capita GDP and productivity growth on only 0.7 percent from 1992 to 2002.
3. “Lost decade” or depression
(eg, broad income
loss, deleveraging)