While the spectacular Covid shock may easily lead to exaggerate extrapolations, it cannot be ruled out that it will matter for long-term productivity and growth. However, the effects could work both ways. Reasons why the current crisis could further worsen “secular stagnation” are many, yet there are also a channels through which it could work positively.
Since the 1970s, productivity gains in the developed economies have gradually slowed (from around 2% per year to less than 1% in the 2010s), despite intermediate cyclical rebounds (at the end of the 1990s in particular).
Several reasons have been put forward to explain this slowdown, some linked to supply (de-industrialisation, the low contribution to productivity from information technologies), others to demand (ageing, loss of confidence following crises, over indebtedness, inequality) and others still to measurement issues (difficulty in factoring in the increasingly rapid appearance of new products and services).
It cannot be taken for granted, at this point, that the current crisis will have a long-lasting effect, positive or negative, on productivity growth (as well as on the other components of the broader economic “secular stagnation”). The spectacular 2020 shock may have created an environment conducive to excessive conclusions about its capacity to alter well-entrenched trends that stretch back several decades and are underpinned by many factors.
Because something is uncertain, however, does not mean it is impossible, and some aspects of the Covid crisis do seem enough to warrant reflection at the very least on their potential longterm effects on economic growth. Lasting changes could affect each component of a traditional production function: Total Factor Productivity (TFP: productivity of both labour and capital), capital inputs and labour inputs. Some of these changes maybe negative and some positive.