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Macroeconomics: 4 questions for an uncertain future

Patrick Artus
Head Economist at Natixis
Key takeaways
  • Since the late 1990s, the bargaining power of employees in the labour market has continuously weakened due to the deregulation of labour markets and the decline in unionisation.
  • In the future, if inflation rises and wages increase, this will inevitably lead to a significant increase in interest rates and thus a rise in debt that would be difficult to bear.
  • At least 120,000 job losses are expected in the car manufacturing sector due to the energy transition if no action is taken.
  • More than ever, macroeconomic analyses are dominated by the uncertainty linked to the energy transition, the workforce, the rise in investment and digitalisation, and the war in Ukraine.

For a prospec­tive study of our eco­nom­ic future, it is worth look­ing at macro­eco­nom­ics. This dis­ci­pline high­lights four major ques­tions that will cer­tain­ly have a pro­found impact on our imme­di­ate future. Between the bar­gain­ing pow­er of employ­ees vis-à-vis com­pa­nies, the bal­ance between sav­ings and invest­ment, the eco­nom­ic and social ‘dam­age’ of the ener­gy tran­si­tion and, final­ly, the link between digi­ti­sa­tion of the econ­o­my and pro­duc­tiv­i­ty gains, a warn­ing about a poten­tial­ly uncer­tain future is in order.

#1 Will employees take back power?

Since the late 1990s, employ­ees’ bar­gain­ing pow­er in the labour mar­ket has been steadi­ly weak­ened by the dereg­u­la­tion of labour mar­kets and the decline in union­i­sa­tion. This has result­ed in a dis­tor­tion of income dis­tri­b­u­tion to the detri­ment of employ­ees (for the OECD coun­tries as a whole, real wages have only increased by one third of pro­duc­tiv­i­ty over the last 20 years). As a result, low wage growth and low infla­tion have allowed inter­est rates to fall.

If in the future infla­tion were to rise and wages increase, this would inevitably lead to a sig­nif­i­cant increase in inter­est rates and thus to an increase in debt which would be dif­fi­cult to sus­tain. Dur­ing the COVID cri­sis, com­pa­ny prof­it mar­gins increased, which indi­cates that the employ­ees’ bar­gain­ing pow­er is still lim­it­ed. Could this improve in the future? We must recog­nise that there is now sig­nif­i­cant pres­sure to raise wages, espe­cial­ly low wages, due to infla­tion, which could lead to an increase in employ­ees’ bar­gain­ing pow­er, for exam­ple if there is an organ­ised increase in min­i­mum wages.

#2 Can increased investment cause an overall shortfall in savings?

The sec­ond impor­tant issue is the evo­lu­tion of the bal­ance between sav­ings and invest­ment. For the past 20 years, there has been a glob­al sav­ings sur­plus, and there­fore an over-demand for risk-free secu­ri­ties (trea­sury bills, bonds). This is caused by a high sav­ings rate in Europe and a very high sav­ings rate in Chi­na, as in many oth­er Asian coun­tries. This sit­u­a­tion has con­tributed to the fall in both nom­i­nal and real long-term inter­est rates, though this fall is also due to sus­tained expan­sion­ary mon­e­tary poli­cies. If in future this sit­u­a­tion were to change there would be an increase in inter­est rates, with well-known neg­a­tive effects on the sol­ven­cy of borrowers.

If in the future the sav­ings sur­plus were to dis­ap­pear, there would be a rise in equi­lib­ri­um inter­est rates, with proven neg­a­tive effects on the sol­ven­cy of bor­row­ers. On the one hand, the ener­gy tran­si­tion will require a sharp increase in the glob­al rate of invest­ment (for the pro­duc­tion of renew­able ener­gies, for the ther­mal ren­o­va­tion of build­ings), which is esti­mat­ed at 4 points of glob­al GDP; on the oth­er hand, demo­graph­ic age­ing should in prin­ci­ple reduce the sav­ings rate (as retirees spend). We might there­fore expect this sit­u­a­tion to go away of its own accord. How­ev­er, there is still some doubt in this regard, as this has not been the case in Japan, for exam­ple, where the age­ing of the pop­u­la­tion has failed to elim­i­nate excess savings.

#3 What “damage” could the energy transition cause?

The third issue con­cerns the effects of the ener­gy tran­si­tion and more par­tic­u­lar­ly its costs. These are well known: the destruc­tion of pro­duc­tive cap­i­tal in affect­ed indus­tries (fos­sil fuels, ther­mal cars), the rise in ener­gy prices (with costs aris­ing from the inter­mit­ten­cy of renew­able ener­gy pro­duc­tion), the destruc­tion of jobs, and the trans­for­ma­tion of nec­es­sary skills. If strong cor­rec­tive poli­cies are not put in place (retrain­ing of employ­ees, assis­tance for affect­ed indus­tri­al­ists, redis­trib­u­tive poli­cies in favour of low-income house­holds that will suf­fer as a result of the rise in ener­gy prices), the loss of growth and the rise in unem­ploy­ment could be significant.

The ques­tion of the scale of the cost of the tran­si­tion is there­fore cen­tral to both the econ­o­my and the social sit­u­a­tion. Take the exam­ple of the auto­mo­tive indus­try (con­struc­tion, trade, repair): at least 120,000 jobs are expect­ed to be lost because of the ener­gy tran­si­tion. If no strong action to retrain work­ers is put in place, the social prob­lem will be major, espe­cial­ly in regions where the auto­mo­tive indus­try is pri­mar­i­ly based.

#4 Will digitalisation generate productivity gains?

The final ques­tion is the link between dig­i­tal­i­sa­tion and pro­duc­tiv­i­ty gains (and there­fore poten­tial growth). The Covid cri­sis has trig­gered an accel­er­a­tion of the dig­i­tal­i­sa­tion of the econ­o­my, with online trad­ing, remote work­ing and the automa­tion of cer­tain sec­tors. Faster pro­duc­tiv­i­ty gains can be expect­ed as a result of this dig­i­tal­i­sa­tion of the econ­o­my, but it should be recog­nised that this is not guar­an­teed. With the pro­lif­er­a­tion of online dis­tri­b­u­tion jobs and inter­net plat­forms, which have a low lev­el of pro­duc­tiv­i­ty gains, over­all pro­duc­tiv­i­ty can only be dragged down. More than ever, macro­eco­nom­ic analy­ses are dom­i­nat­ed by the uncer­tain­ty linked to these four fac­tors, to which the war in Ukraine can now be added.



Patrick Artus

Head Economist at Natixis

A graduate of Ecole Polytechnique, Ecole Nationale de la Statistique et de l'Administration Economique and the Institut d'Etudes Politiques de Paris, Patrick Artus was Director of Research and Studies at NATIXIS until 2020, then Chief Economist and Member of the Executive Committee. He combines his teaching duties with his research work and is associated with various economic journals and associations. Today Patrick Artus is on Boards of Directors at Total and IPSOS as a Director and Economic Advisor to Natixis.

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