Right now, it seems like the entire world is getting routed in the market. U.S. stocks are crashing, China is slowing, Argentina and Venezuela are failing. Japan is in a rut and Europe is a deflationary mess.
It’s disheartening for certain, and Deutsche Bank has good news and bad news for you on that. There is hope for the global economy, but it’s currently out of reach.
“…a revival of infrastructure investment in the US is key to a sustained revival of global economic growth,” analyst Sanjiv Sanyal wrote in a recent note. “This would lead us back to a period of large symbiotic imbalances — which we dub as “Bretton Woods Three”. Far from decrying this as a failure of global policy co-ordination, economists should accept imbalances as the natural state of being and try to manage the accompanying distortions. However, if Bretton Woods Three fails to take off for whatever reason, we should reconcile ourselves to a long period of mediocre growth.”
The way Sanyal sees it, as China rebalances from an investment driven economy to a consumption driven economy that money — about 25% of the world’s total investments — will have to go somewhere. The IMF has said that countries should use it for domestic infrastructure development. That will create jobs, something we desperately need in a world where what’s truly lacking is demand.
The country in the best position to do this is the United States of America, where investment as a percentage of GDP has been on the decline for years. It fell from 20.5% in 2008 to 14.5% now.
The problem is that the current political climate in the U.S. makes investment in infrastructure next to impossible. The country has needed this kind of investment for some time, but it has completely collapsed since the financial crisis.
“…the problem of global investment is really a not about the world as a whole, but about developed countries. Their share in global investment has been declining not just because of their falling share of the
world economy but also because of the fact their investment effort has been falling as a share of their own economies,”
But in an election year, you can bet that the last thing conservative deficit hawks are going to want to do is look like they’re rolling over and spending more money.
Plus, it looks like the Democrats are going to get crushed in the House of Representatives, effectively blocking any hope for increased spending unless Republicans change their mind about it.