Investing in infrastructure as a way to stimulate flagging economies around the world
Investors, central bankers and policymakers are once again talking about investing in infrastructure as a way to stimulate flagging economies around the world.
The likely economic hit from Brexit is leading UK politicians to tout infrastructure spending as a way of avoiding the more pernicious economic impacts of exit. UK chancellor Philip Hammond has been lobbied heavily ahead of Wednesday’s Autumn Statement.
In the US, political criticism of the Federal Reserve’s policies is leading more calls for fiscal reform; president-elect Trump cited big infrastructure upgrades in his victory speech.
There is plenty of evidence to suggest that infrastructure investment might have the desired economic effect. The International Monetary Fund looked at 17 advanced economies and found that an increase in investment spending equivalent to one percentage point of national income increases the level of output by 0.4 per cent in the same year and 1.5 per cent four years later.
A big reason why infrastructure investment is back in vogue is that global growth is poor. The efforts of central banks to provide a pick-up for it are producing ever-diminishing returns and creating nasty unintended consequences. Politics is playing a part, too.