Mega trends and sustainabilityof growth in Europe

Markku Lehmus

ETLA

EIC Conference, Helsinki 11.10.2019

In the short run, economic climate is gettingworse

Sentiment in industrial sector is declining, butservices and construction sectors provide some hope

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Political uncertainty is increasing…Populationgrowth in Europe is forecast to be stagnant

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Climate change is the biggest challenge of ourfuture

We do not know the exact numbers…but we knowthat there will be economic consequences fromthe climate change

Source: Tol(2018)

New technologies

• Improve labour productivity (wages increase -> more demand)

• Destruct current human tasks

• Create new tasks for humans

• Relative price of human work decreases (more demand for humans)

• Which direction technology evolves?

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Development so far

Acemoglu ja Restrepo (2016).

Declining labour supply will also be an impedimentfor growth in Europe in the next decades

Lower productivity -> more labour is needed

Where now for Europe ? Europe is a laggardin growth as compared to the US

The balanced growth in euro area? The level of unemployment is ok, but growth too dependenton export growth (especially in Germany)

Are we ”smart” enough in Europe ?

Lack of competition may be a significantproblem too…

Insecurity -> intolerance

Guiso ym. (2017). Epr dp 11871.

Democracy in danger

THANK YOU!