Weekly Economic Report 2.27.26

We are big fans of GaveKal, the investment and macroeconomic advisory firm based in Hong Kong, and today’s newsletter will focus on one of their key insights – that GDP is energy converted. Obviously, an economy grows along with increases in its labor force or capital base – but a key bottleneck is access to energy, as history has revealed an exceptionally strong correlation between real GDP growth and underlying energy production. One has to look no farther than the deep recession caused by the first energy shock in 1973 (at the start of our economic studies) or the recent cutoff from Russian gas with the outbreak of the Ukraine war to see that energy is a critical input to GDP growth. Citizens of energy exporters like Saudi Arabia, the UAE, Norway or even Alaska enjoy higher incomes with less effort, while nations with few domestic energy sources face a nasty catch-22, as it is harder to produce trade goods to buy it.

EU02-27-2026.pdf

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