Australia appears to be slipping back into the post-GFC, pre-COVID growth model – one marked by flat real wages, declining productivity, and reliance on population growth to drive headline GDP. Australian real wages are 4.8% lower than before the pandemic, compared with most developed peers that have managed gains, and real household disposable income per capita has fallen by 8% over the past two years, the worst outcome across the OECD.

At the same time, productivity growth has slowed structurally, according to the Reserve Bank of Australia, leaving little scope for wages to rise without inflationary pressure. With per-capita GDP falling for seven consecutive quarters through 2024, Australians have lost over a decade of progress in living standards.

Added to this is the increasing role of government, not just as regulator but as an active player in the private economy. The outcome looks uncomfortably similar to the current UK experience – a tepid growth environment where households feel little genuine progress and fiscal levers do the heavy lifting.

The United States tells a very different story. Far from a simple reversion to the old model, the US economy appears to be entering a new cycle altogether. Large-scale government spending, corporate investment in infrastructure and technology, and higher wage growth – particularly for lower-skilled workers – are reshaping the landscape.

This combination suggests an end to the long era of ‘secular stagnation’ that defined much of the post-2008 world. Instead, the US faces a future of higher inflation and structurally higher bond yields. Policy shifts in immigration and trade are likely to add significantly to volatility, and may impact growth in the short-term, but their long-term future will be shaped by dynamic growth rather than stagnation.

This resilience will be driven by productivity trends, the magic pudding of economic prosperity. The chart highlights a decisive divergence: U.S. labour productivity has surged since the pandemic, creating the conditions for sustained wage gains and stronger corporate performance, while Australia has gone into reverse.

For investors, the divergence flows directly into earnings expectations. As the EPS forecast chart shows, Australian corporate earnings expectations have lagged global peers significantly. While MSCI All Country earnings growth remains anchored near 10%, Australia has struggled to break out of the low single digits since the pandemic. Weak productivity and stagnant real wages weigh on domestic demand, leaving companies reliant on cost-cutting or population growth to support earnings

By contrast, the US and other more developed economies could see a more inflation-prone but investment-rich cycle, where companies – and households – feel both the risks and opportunities of a more dynamic economy.

This divergence underlines the key point for investors: Australia risks offering stability but little dynamism, while the U.S. carries more volatility but also the potential for structurally higher returns.

Two developed economies, both hit by the same global shock, now appear set on diverging paths: Australia retreating into a familiar but uninspiring model, and the US embarking on something new, more volatile, but potentially more rewarding.