A leading economist has predicted continuing slow growth in the near term for both the US and Europe, with the solution being a review of the role of finance in the real economy, during this week's CoreNet Global Summit in Paris.
During a session on the latest market upheavals and potential impacts on corporate real estate, Catherine Lubochinsky, professor of economics at the University of Paris 2 predicted that in the near term, the US and Europe will experience continuing slow growth and lower real wages.
Giving consideration to how these major markets can get out of the ‘current economic mess and onto firmer footing', Lubochinsky said that the role of finance has to be revisited. 'It's too big for the real economy,' she cautioned. 'Finance can destabilise the real economy.'
The real economy, she explained, has to do with productivity and employment. And we haven't seen much of those lately.
There's ample evidence of the outsized influence of financial markets and the disconnect between finance and the real economy.
In 2010, for instance, the value of bonds, equities and bank assets in the US exceeded 431% of gross domestic product (GDP). In the Eurozone, it was 533%. In the UK, the figure was 850 %. 'It's very easy for China to influence the price of public debt, whether US or Europe,'Lubochinsky said. 'They both want China to buy their bonds.'
The US and Europe face a conundrum: governments need to increase spending to spur growth, but they also need to reduce deficits. 'If anyone has the answer to this, please let me know,' she joked.