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Lobnek Newsletter, February 2020

Adjusting To A Slower Secular Growth

Altug Ulkumen, CFA Independent Contributor
LOBNEK Wealth Management, February 2020

Mindsets are like habits, they can be difficult to change, especially when they have been lingering on for very long periods of time. Take Gross Domestic Product (GDP)1 which is a well-established, standardized measure of the aggregate economic output of a country or a region. We look at its change to get an idea of how well (or not) an economy is performing. Governments, especially those elected democratically, have a real incentive to maximizing the growth rate of GDP2. The trick is to engineer higher growth without triggering runaway inflation, which compromises the economy. This becomes a risky proposition when operating under the time constraint and pressure of elections, which is why a separation between the executive branch and the central bank is so big a deal. You don’t want to have your central bank to be “managed” by the short-term whims of politicians.

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