Consumption growth would weaken as downwardly revised profit expectations limit stock market gains, thereby reducing household wealth, and as moreforesighted consumers perceive that smaller productivity gains portend lower real wage growth. Lower expected rates of productivity growth should also tend to moderate growth in business investment by reducing the prospective return to capital.
As consumption and investment spending make up more than four-fifths of aggregate output, slower productivity growth would perforce reduce output growth as well. What about inflation? In principle, the medium-term effect of slowing productivity growth on inflation is ambiguous.