Invest in Productivity

Deglobalization, the reduction of interdependence and integration between economies, has gained momentum due to geopolitical tensions, protectionist measures and disruptions to global supply chains. For example, the recently introduced tariffs by different major global economies lead to rising costs for goods and services, which in turn leads to higher production costs and consumer prices, an increase in inflation as well as a decline in productivity. In addition, lower foreign investment restricts access to capital and technology, which has a negative impact on GDP. The very recent trade war between the USA and China has impressively demonstrated the consequences of deglobalization.

Demographic change, particularly the ageing population in many developed economies, represents another major challenge for politics and the economy. The increasing proportion of older people is reducing the supply of qualified specialists and the employment rate in general, which is leading to lower overall productivity and therefore falling GDP. With money supply remaining constant and economic growth falling, inflation rises. Countries such as Japan and Germany, which have one of the oldest populations in the world, are under considerable economic pressure due to the decline in working population.

Decarbonization is a crucial goal to mitigate climate change but requires significant economic adjustments. The transition from fossil fuels to renewable energy sources entails significant investment in new technologies and infrastructure. While these investments are essential for long-term sustainability, they can lead to higher energy prices in the short term. Regulatory measures such as carbon taxes and emissions trading schemes aim to reduce greenhouse gas emissions but also increase production costs for companies. These higher costs are usually transmitted to consumers, contributing to inflation.

The debt of both governments and the private sector has also reached a new record high. High debt burdens limit the flexibility of national economies to respond to new challenges and opportunities. Significant portions of the national budget are strained, leaving fewer resources available for productive investments in infrastructure, education and technology. In the United States, for example, the national debt has grown to over 30 trillion US dollars, putting considerable pressure on finances. In the private sector, high levels of corporate and household debt can lead to financial instability, as the 2008 financial crisis demonstrated. The resulting financial turmoil can lead to recessions, high inflation rates and major crises.

Productivity gains, can fortunately counteract these negative trends. Productivity gains lead to an increase in economic growth, a slowdown in inflation and thus a counteraction to stagflation. Investors profit as companies that are more productive increase their margins, reduce costs and thus significantly improve their profitability. This double win - macro-economic stabilization and growth as well as the generation of an independent factor premium for investors - illustrates the central role of Averdas’ factors as sustainable value drivers.