I’m thrilled to be back in Europe this week and to discuss new research that underscores the economic power of technology diffusion. Flint Global shared their groundbreaking analysis on technology's role in European competitiveness, and the findings are striking and relevant to current EU policy debates.
The research quantifies what we've long understood -- technology diffusion contributes over €1 trillion to the EU economy, or nearly 6% of EU GDP. We see it daily at Amazon in how international technology helps European firms innovate and scale across sectors. The study also reveals the costs of restricting technology adoption. Even a modest 15% reduction would cost the EU nearly €200 billion annually by 2030.
At a time when Europe is focused on boosting productivity through initiatives like the Competitiveness Compass, creating barriers to technology adoption would be counterproductive. It’s compelling to see the data show a deeply integrated and mutually beneficial transatlantic digital economy. This research provides crucial evidence for policymakers navigating these complex decisions. Read the full report here: https://lnkd.in/gav9b7h7
The “productivity boom” isn’t economy-wide. It’s FIIPB-led.
This chart uses real GDP per employee as a proxy for productivity and smooths noise with a six-year growth rate. Since 2022, FIIPB (Finance, Insurance, Information, and Professional & Business Services) shifts into a higher productivity-growth regime and keeps climbing. Outside FIIPB, productivity growth is basically stuck.
That matters because FIIPB is more than 40% of U.S. GDP. When productivity accelerates in a sector that large, it can lift the aggregate even if the rest of the private economy doesn’t break out.
It’s also exactly where AI adoption is showing up first—information-heavy work like software development, financial operations, and customer support.
Bottom line: this isn’t a broad productivity renaissance. It’s a concentrated acceleration in the white-collar core—one that can keep output strong while hiring stays soft.
Sources: BEA and BLS.
#productivity#economy#labormarkets#AI#recruitment#futureofwork
📊 The US economy continues to expand — but the foundations of that growth are shifting.
📉 Real GDP growth slowed sharply to 0.7% (annualized) in Q4, bringing full-year 2025 growth to 2.1% despite an extraordinary combination of supply shocks: trade policy upheaval, rapid AI adoption, and a historic collapse in immigration. Much of the late-year slowdown reflected the longest government shutdown in US history, but private demand also softened modestly.
🛍️ Consumers are still spending, but they are becoming far more selective.
Spending rose 0.4% m/m in January, yet real consumption increased just 0.1%, with households rotating away from tariff-impacted and higher-priced goods. Outlays are increasingly concentrated in “must-do” services such as housing, utilities, healthcare and insurance, while discretionary categories like travel, restaurants and leisure are seemingly losing momentum.
💰 The income foundation supporting consumption is fragile.
Real #consumer spending is growing 2.4% y/y, but real disposable income is expanding at a slower 1.8% pace. This gap suggests resilience in consumption is increasingly sustained through tighter budgeting and spending selectivity rather than stronger income growth.
⚙️ Meanwhile, #productivity — not hiring — is driving the expansion.
The economy added only 116,000 jobs in 2025, yet output continued to expand as firms focused on efficiency in a high-cost, high-interest-rate environment. Productivity has grown at a 2.2% annualized pace since 2019, supported by operational discipline and increasingly by #AI investment.
📈 Inflation pressures also remain stubborn. Core PCE #inflation accelerated to 3.1% y/y in January, and short-term momentum suggests underlying price pressures were already firm before the recent energy shock tied to the #MiddleEast conflict.
⚠️ Looking ahead, the US economy faces a new set of crosscurrents. Higher energy prices, tighter financial conditions and elevated geopolitical uncertainty are likely to push inflation temporarily higher this spring while weighing on growth. The expansion is continuing — but it is becoming more uneven, more selective and more sensitive to supply shocks. We have revised our #GDP growth forecast to 2.0% in 2026.
EY-ParthenonEYLydia Boussour
Retail sales came in above most forecasts, staying unchanged in June.
The upside surprises prove that the significant slowdown in inflation in the past two months has been a major tailwind for consumer spending, not the other way around as many had anticipated.
📊 After we adjust for inflation, sales volume should grow much higher in June than what the topline suggested. We estimate that sales volume did grow between 0.3% to 0.4%, a strong showing of consumer strength in June after the recent pullback.
📉 The most important leading indicator for GDP growth in the second quarter is sales of the control group, which excludes volatile components like autos, gasoline, food, and building materials. This group showed an even stronger number, up 0.8%. Together with the upward revision to May’s data, the probability of GDP, especially the consumption component, growing above 2% in the second quarter should increase markedly. Our forecast before the release of the data today was at 1.8%.
⛽️ Underneath the toplines, sales of gasoline and motor vehicles led the drop, down 3% and 2%, respectively. They are often two of the most important components of the overall sales number. Such big drops helped consumers have enough money to spend elsewhere, mostly on online sales with the non-store component up 1.9% in June.
🔮 Looking ahead, we expect American consumers to remain resilient in July with inflation likely continuing to be a key tailwind and the sales boost from the two Amazon Prime days. While the economy is cooling down, we believe that concerns over the “death” of the American consumer have been exaggerated. It's true that excess savings might have run out by now. However, American households remain on a very strong balance sheet, constantly replenished by strong income growth from wages and assets from the equity market.
Weak GDP Headline Masks Strong Private Demand and Business Investment:
Headline GDP (Q1) contracted 0.3%, however, the underlying data points to a stronger U.S. economy than the top-line figure suggests.
Economists have the narrative that the headline number should be discounted, since it was mostly driven by import surge that frontloads tariffs and government cut to defense spending. Adjusting for this, Q1 GDP would have risen 3%+. Nominal GDP is even higher as the GDP inflator (PEC) came in at 3.5%, showing strong resilient nominal GDP growth.
The weakness in GDP was largely driven by a 41% surge in imports ahead of anticipated tariffs, a drag on net trade that subtracted 4%+ from growth. Since imports are subtracted in GDP accounting but often reflect strong domestic demand, they shouldn't be viewed as a signal of economic deterioration. In fact, private domestic final sales, which rose 3.0% might be a better measure of core demand (same as the Q4 #). Consumer spending grew 1.8%, and business investment surged 9.8%, led by a sharp rebound in equipment outlays, pointing to economic resilience. Government spending declined 1.5% due to reduced federal outlays, particularly defense. In aggregate, the data suggest the economy is not stalling but instead navigating temporary trade-related distortions, while maintaining healthy underlying momentum in private sector demand and investment. Time will tell, as the profound public policy measures being adopted will have a material impact on commerce.
Today’s payroll numbers will also tell an important story, the first significant report for Q2. The April employment report forecasts 137,000 new jobs - a healthy pace. Q1 job reports were strong with the economy adding 228,000 in March, 151,000 in February and 143,000 jobs in January. As long as job growth remains robust, the economy should continue to expand.
Impressive recovery for equities, credit conditions are perfect for public and private markets. Stay invested.
India’s Q1FY26 GDP grew 7.8% YoY, but there’s a lot to look beyond the headline numbers.
India’s GDP growth was well above consensus of 6.7%. But this upside surprise was largely statistical — driven by the lowest GDP deflator since 2019, front-loaded government spending, and early exports.
𝗕𝗲𝗻𝗲𝗮𝘁𝗵 𝘁𝗵𝗲 𝘀𝘂𝗿𝗳𝗮𝗰𝗲, 𝗱𝗲𝗺𝗮𝗻𝗱 𝘀𝗶𝗴𝗻𝗮𝗹𝘀 𝘄𝗲𝗿𝗲 𝗺𝗶𝘅𝗲𝗱:
• Private consumption improved to 7%, and government spending rebounded to 7.4%.
• Rural demand showed early signs of revival (agriculture at 3.7%).
• Policy moves like GST rationalisation, tax cuts, and RBI’s rate easing could provide a buffer ahead.
• Yet, high-frequency data — auto sales, production trends — reflected softening momentum.
𝗖𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀: 𝗦𝘁𝗶𝗹𝗹 𝗪𝗲𝗮𝗸
• BSE500 PAT grew 9.9% YoY; Nifty50 PAT 7.9% YoY — the fifth straight quarter of single-digit growth.
• Earnings bottoming is expected, but recovery will likely be gradual and uneven, led by discretionary and industrial sectors.
𝗦𝗲𝗰𝘁𝗼𝗿𝗮𝗹 𝗗𝗶𝘃𝗲𝗿𝗴𝗲𝗻𝗰𝗲
• Strength: Energy, Materials, Telecom, Real Estate delivered double-digit growth.
• Weakness: Consumer Discretionary & Staples lagged, with subdued demand visible.
• Chemicals and Cement are showing early margin recovery, hinting at churn in sectoral profit pools.
𝗪𝗵𝘆 𝗖𝗼𝗻𝘀𝘂𝗺𝗽𝘁𝗶𝗼𝗻 𝗖𝗼𝘂𝗹𝗱 𝗣𝗶𝗰𝗸 𝗨𝗽
• GST rationalisation and income tax cuts are expected to lift household disposable incomes.
• RBI’s front-loaded rate cuts should aid financing-driven consumption.
• Rural recovery, if sustained, can add to demand momentum.
📌 Takeaway: Q1FY26 highlights the gap between headline GDP and underlying demand. Consumption remains the key variable to watch, and while earnings may have bottomed, the path to recovery looks more measured than euphoric.
#IndiaEconomy#Q1FY26#GDPGrowth#CorporateEarnings#MarketAnalysis#Consumption
Today's AI infrastructure buildout is only rational if it delivers extraordinary productivity gains. 📈💥
The five largest U.S. tech firms are on track to spend roughly $755 billion on AI-related capex in 2026, up from $155 billion in 2022. At that scale, AI is no longer just a technology story, it is a macroeconomic bet.
A new NBER working paper asks a simple question: what productivity gains are required to justify the investment path we are currently observing?
The answer is remarkable. To rationalize the projected surge in AI investment, the authors calibrate a model in which AI-sector productivity rises by roughly 2.7x. Depending on how the AI boom unfolds, the model implies additional cumulative GDP growth of between 5 and 58 percentage points by 2030, with AI's share of the economy rising from about 3% today to between 8% and 39%.
The key insight is not that these forecasts will necessarily materialize. It is that current investment levels already embed extraordinarily ambitious assumptions about future productivity growth.
In other words, the AI buildout is not just betting on better models. It is betting on one of the largest productivity accelerations in modern economic history.
The Economist just highlighted a striking fact: America’s economy is growing at ~2% — normal for a developed country. But here’s the catch: up to 40% of that growth is coming from AI. So, AI is doing the heavy lifting — powering GDP through chips, data centers, and grid upgrades — while other sectors like housing and consumption are weak or flat. And it comes with tradeoffs: average U.S. electricity bills are up 7% this year, in part from AI-driven grid strain. America must lead in AI. That means more data centers and more power. But it also means expanding generation and transmission fast enough to keep costs in check.
#AI#Economy#Energy#Growthhttps://lnkd.in/etA3xDZy
I spoke multiple times about fiscal spending and how it is the main reason the US economy is not a recession, and why job numbers are holding. While current fiscal spending is not the highest, it remains high, and it is very high when looked at relative to the deficit. When Government spending large amounts of money financed through deficit, this would not be creating real economic growth, but kicking the can forward to future generations.
U.S. Fiscal Deficit: How It’s Shaping Economic Momentum in 2024
In 2024, U.S. fiscal policy continues to be a major driver of economic activity, with increased government spending playing a pivotal role in keeping the economy afloat. With a fiscal deficit expected to hit $1.7 trillion this year, the U.S. is not shying away from expanding its balance sheet to stimulate growth. But how exactly is this deficit feeding through the economy, and what role does the multiplier effect play?
1. Gov. Spending and Employment
One of the most visible effects of fiscal spending is on public sector employment. The government employed 2.2 million people in 2023, with the recent expansion in government hiring in sectors like infrastructure and healthcare pushing this figure even higher in 2024. For ex., the Bipartisan Infrastructure Law alone is projected to create 800,000 jobs annually, which not only benefits direct employees but also supports related sectors like construction, technology, and education.
2. The Multiplier Effect in Action
Fiscal spending creates a ripple effect through the economy, known as the multiplier effect. According to research from the Congressional Budget Office, every dollar of government spending generates approximately $1.50 to $2.00 in additional economic output. This multiplier effect becomes particularly important in periods of economic uncertainty, where consumer spending may be weak, and private sector investment cautious. For instance, with the U.S. GDP growing at 2.1% in the first half of 2024, much of this growth can be attributed to federal spending. Programs like pandemic recovery grants and infrastructure projects are feeding into sectors beyond government—supporting small businesses, increasing demand for materials, and raising household incomes, which in turn boosts consumption.
3. Channels of Fiscal Impact
Beyond employment, fiscal measures flow through several critical channels:
- Transfer Payments: Social Security (SS), unemployment benefits, and other transfer programs have increased in recent years, with SS benefits rising by 8.7% in 2023. This has helped keep consumer spending steady, especially among older Americans, a demographic that represents around 70% of consumer spending.
- Public Investment: The $550 billion in infrastructure investment over five years is laying the groundwork for future productivity gains, particularly in energy and transportation. Such investments are anticipated to have long-term growth impacts by improving efficiency and competitiveness.
This would explain a lot--Harvard economist Jason Furman found that nearly all U.S. GDP growth in the first half of 2025 came from investment in data centers and information-processing technology. Excluding these, growth would have been just 0.1%, highlighting tech’s outsized role in the economy. Major firms—Microsoft, Google, Amazon, Meta, and Nvidia—drove massive spending, with hyperscaler capital expenditures nearing $400 billion annually. Analysts estimate this investment added about one percentage point to GDP growth. Meanwhile, most other sectors stagnated, underscoring an uneven economy seemingly propped up by AI-related infrastructure. This surge in technology-led growth comes against a backdrop of wider economic sluggishness and paradoxically strong GDP growth. Job creation has slowed, raising concerns that, absent technology investment, the U.S. economy could have slipped into recession. Other sectors—from manufacturing and real estate to retail and services—contributed little or even detracted from overall output in the first half of 2025. Furman and others warn the boom may mask broader economic weakness.
https://lnkd.in/gCUngW4x