US and Eurozone to enjoy lasting growth at full employment? - Natixis

According to Patrick Artus, Research Analyst at Natixis, once the United States and the euro zone have reached true full employment, growth will at best be equal to potential growth at a stable participation rate, i.e. around 1.4% per year in the United States and 1% per year in the euro zone.

Key Quotes

“It is also possible that the economic slowdown will be far greater, like in the past: what conditions must be met for the rosy scenario of steady (and moderate) growth at full employment to materialise instead of the recession scenario?

• The growth slowdown must not trigger a downward correction in corporate investment or housing investment. So there must not have been overinvestment beforehand; this appears to be the case;
• There must not be inflation or a sharp increase in interest rates; this seems to be ensured;
• There must not be a correction of an asset-price bubble or any large-scale overborrowing. Several financial imbalances are visible at present, but none that seems to be large enough to trigger a recession for the time being. Some concern here may arise from the very high commercial real estate prices.”

“Altogether, the possibility of a transition at full employment to steady (and moderate) growth at the level of potential growth in the United States and the euro zone exists, with the sole danger emanating from commercial real estate.”