To maintain the uptick in growth, Europe and the U.S. need to implement measures that reverse persistent downward pressures on potential -- that is, the ability of advanced economies to grow not just today but also in the future; and to do so in a more inclusive manner.
In the U.S., this requires progress on Capitol Hill on the tax plan, as well as congressional support for the administration’s infrastructure initiative and steps to enhance labor productivity and improve the benefit-to-cost ratio of technological innovation. In Europe, as I argued last week, it takes a more complicated combination of top-down and bottom-up policy measures at both the national and regional levels.
By buying every dip, traders and investors have essentially brought forward future economic growth and financial returns. They are betting that a comprehensive pro-growth policy response in advanced countries will eventually validate what, otherwise, would be quite fragile markets.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.