Comment | America is always growing fast

About the chapter

Not investing in the United States could have cost you a lot of income in recent years. Until 2014, US and European stock markets were in line with each other. With the MSCI Europe index you would have earned 109% over the past ten years (including dividends received), while the S&P 500 has risen 314%. A big difference.

One explanation is the difference in economic growth. Over the past decade, the US has outgrown European economies by an average of 1% per year. Strategists seem to take for granted that America is growing fast. Time to look at the reasons.

On the one hand, because the US population growth is also high. The latter effect accounted for half of the growth variance. Also, the number of workers has to grow at the same rate, otherwise it makes no economic sense.

Additionally, the US government under President Joe Biden has stepped things up with all kinds of tax incentives. Much of this was spent on long-term investments such as chip factories, infrastructure and greening. Public finances are still spiraling out of control after Donald Trump’s tax cuts, but the money is being put to good use.

In addition to financial incentives, the flexibility of the US labor market is an important factor. It’s not always pleasant as an employee, but it makes it easier for companies to invest.

Finally, the American consumer spends his money very easily. After Corona all the extra savings were spent. That’s good for the economy, but that pot is now depleted.

How different is the picture in Europe? People there are still sitting on their savings. In most European countries, the corona coin is not used. Good for potential growth, but you can’t live on potential growth.

In Europe we suffer greatly from an aging population, while in most countries the pension age has not increased (enough). This, combined with tight labor markets, creates a bleak outlook, especially in the current populist climate. Such a labor market is a political choice, but one of its consequences is low economic growth. We have a lot of bureaucracy, yes. Add to this the stagnation of export markets like China and the picture is complete.

Fortunately, Southern Europe still has some plus points. On the one hand, the enormous financial stimulus from Brussels and on the other hand, the positive tourism effects. That’s why I watch the various anti-tourism protests with amazement. If you are financially dependent on it, such a move is very risky.

So would that growth difference be so great? The drivers of the US economy – population growth, the corona savings fund and fiscal stimulus – will undoubtedly slow. But economic revival in Europe? No matter how much I search, I don’t know where it comes from.

About Corné van Zeijl’s column

Corné van Zeijl is an analyst and strategist at Cardano and a private investor. Please reply via [email protected]. You can also read this paragraph every Thursday FD