The inconvenient truth on energy and GDP The inconvenient truth on energy and GDP The inconvenient truth on energy and GDP

The inconvenient truth on energy and GDP

Equities 8 minutes to read
Peter Garnry

Head of Saxo Strats

Summary:  Before the Q1 earnings season kicks into a high tonight with earnings from Microsoft, Alphabet and Visa, we are exploring the ideas of a recent economic paper suggesting productivity is linear (additive) and thus the main driver of economic growth is the energy input into the system. Since we are going through an energy crisis we have a problem. It also means that the disruptive innovation idea by Cathie Wood is wrong. As a result, the world needs a major breakthrough in energy technology to unleash the next leg of significant growth.

Productivity is likely linear and thus an energy miracle is needed

As we wait for the big US technology earnings tonight from Microsoft and Alphabet, and other important earnings from Visa, UPS, PepsiCo, General Electric, and Mondelez (read our earnings take from yesterday and listen in on today’s podcast), we will talk about GDP growth, energy, and productivity, and the apparent road block the physical world has hit.

The economic paper Additive Growth* this month by Thomas Philippon has got a lot of attention because it shows that total factor productivity (TFP) is linear and not exponential (see chart below for difference in linear and exponential growth) which is a huge deal for the economic growth theory. We always here that productivity is the most important factor, but if it is linear the growth from productivity will converge over time to zero. Standard of living will continue to increase but at a slower pace. That might be the reason why the technology progression seems less “explosive” in 2022 compared to the steam engine, electricity or the invention of combustion engines (cars)?

But now it gets interesting. Despite GDP is a terrible measure for measuring economic activity due to the ensemble vs time average issue, economic activity can be formulated as GDP = energy input x productivity (TFP). If productivity is linear (additive) to economic growth and we observe exponential GDP growth over 500 years, then the only explanation is that energy input is exponential. Energy input by the way can be seen as a combined input of humans (the machines before the machine age if you will) and energy such as coal, oil, gas etc. The chart below by Ole Peters shows this dynamic by plotting GDP against CO2 emissions (burning coal, oil and natural gas) on a logarithmic scale. Grow energy input and we grow the economy.

Source: Ole Peters

One could provocatively say that humans are not that innovative between periods of true major breakthroughs (steam engines, kerosene, electricity, internal combustion engine, airplanes, radio, nuclear power, transistors, lithium-ion batteries etc.). Edwin Drake discovered oil in 1859 which unleashed the beginning of the oil age which until the discovery of nuclear energy was the biggest increase in energy input to the economy relative to required capital. It immediately unleashed unprecedented economic growth and raising living standards. As the chart above shows, we have basically replicated the process of burning hydrocarbons (coal, oil and natural gas) to fuel ever higher GDP and living standards. The reason could be that – because productivity is additive (linear) and thus does not contribute enough to rise GDP over a long period; only a big increase in energy input increases GDP meaningfully.

If this hypothesis of growth is true, then Cathie Wood’s idea of disruptive innovation is plain wrong and the world will gallop into a catastrophic climate crisis unless we either make a significant breakthrough in energy technology (fusion maybe?) or significantly reduce our growth and redistribute the available GDP. If we cannot make a breakthrough in energy technology (part of the solution will naturally be renewable energy – view our theme basket on renewable energy) that materially decouple GDP from expanding hydrocarbons, and we are not willing to reduce economic activity, then we will power on and live with the climate crisis of higher temperatures and all the fallouts from that.

A tsunami of GDP growth as energy and metals investments soar?

Last section ended on a depressing note for most people, but one should remain optimistic and it is likely that powered by necessity scientists will make a breakthrough in energy technology enabling the next leg of substantial wealth increase and growth for the world. The high prices on energy and metals will create a super cycle and new investment boom which in turn could have the likely impact of significantly increasing GDP growth because investments in energy and mining are activities that are will captured by GDP unlike streaming or social media platforms.

On Friday, Exxon Mobil and Chevron will report Q1 earnings and we will naturally focus on their plans for capital expenditures as the world need significantly more investments in energy to both substitute Russian oil and gas, but also grow the overall energy input.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.