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Equities and productivity

The stock market matters more for the wider economy than you might imagine

The long stagnation in UK productivity might be over. Next week’s figures could show that total hours worked have been flat recently. With GDP growing, this means that productivity has grown since the middle of last year, having stagnated for the previous 10.

Is it really a coincidence that this has happened after a strong rise in share prices in recent years?

No, according to recent research. New York University’s Mark Gertler and colleagues show that movements in share prices over five-year periods are associated with subsequent productivity growth; rising share prices lead to rising productivity, and falling prices to weaker productivity. This corroborates a finding by Christopher Gunn at Canada's Carleton University.

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