Impact on Productivity, Inflation and Investing

Technological change is disrupting companies and economies. Innovation is at the intersection of employment, economic growth and inflation risk—the focus areas of global policymakers.

We debated these topics at our New York gathering this summer. The result is a 16-page piece that separates hype from reality, identifies winners and losers of innovation (both companies and countries), and gauges the impact of rapid technological change on interest rates and investing strategies.

Also check out our interactive graphic on economic growth, educational achievement and other key innovation metrics across the globe.

 

Education Deficits: Quality of Math and Science Education by Country

Highlights:

  • Repetitive tasks in manufacturing are now performed mostly by robots. This is nothing new—robots have roamed factory floors for decades. Yet we could be near a tipping point in adoption. Robots are getting cheaper—and smarter.
  • The next leg of innovation is just starting. Think of the exponential increases in computer power, machine learning and the ability to analyze vast reservoirs of data. Many companies—and investors—have yet to tap these data riches.
  • Faster diffusion of technologies makes it harder for companies to maintain a competitive edge. The internet economy allows companies to piggyback off existing infrastructure, reducing the need for capital investment.
  • Innovation erodes the traditional edge of many emerging markets: cheap labor. Also, diffusion of technology is slow in much of the emerging world due to poor infrastructure and weak legal protections.
  • Tech optimists argue we are on the cusp of a productivity renaissance as new technologies are adopted more broadly. Pessimists counter the productivity boon from the internet era is waning. We lean toward the first group.
  • Innovation cuts out middle-men in supply chains and leads to commoditization. The former tends to reduce demand for existing services; the latter boosts supply. The net result is a steady downward pressure on prices.
  • Technological change is helping put a lid on U.S. jobs and wage growth. This means the U.S. Federal Reserve’s next tightening cycle is likely to be more gentle than in the past—with rates peaking at a lower level.
  • Subdued inflation, aging populations and high debt loads will likely depress nominal GDP growth in long run. Long-term yields could stay low for a long time. Yield curves are likely to flatten further as long-term bonds receive a steady bid from insurance companies and other asset owners amid limited supply.
  • Corporate financing will likely stay cheap. Bond markets are effectively subsidizing equities. Yet the longer financial conditions remain easy, the greater the potential recoil. The link between equities and bonds also means the two could become more correlated, challenging portfolio diversification.
Ewen Cameron Watt (left) and Rick Rieder (right)
Ewen Cameron Watt and Rick Rieder
Peter Fisher (left) and Chris Jones (right)
Peter Fisher and Chris Jones

BlackRock Investment Institute

Visit the BlackRock Investment Institute

Investing insights and analysis across asset classes, investment strategies and borders.

Visit the BII Website

A World of Risk

A World of Risk - BII Interactive Chart

Our interactive BlackRock Sovereign Risk Index ranks the creditworthiness of 50 countries.

Learn more about our interactive charts

Life After Zero

Mid-Year Outlook 2014

BlackRock Investment Institute: 2014 Mid-Year Outlook

Risk assets are grinding higher and volatility is extraordinarily low. Our outlook outlines what is in store for the rest of the year–and what life after zero (rates) may look like.