It’s not just the Reserve Bank wondering what’s up with business investment. The OECD overnight released its inaugural Finance and Investment Outlook and said:
“…the greatest puzzle facing policy makers today is that, following the easy monetary policies induced by the crisis investors in financial markets see little risk, while companies that undertake capital spending see so much risk.”
Just like the RBA, the OECD also focused on the stickiness of the hurdle rate.
“For some reason the ‘hurdle’ rate of return required to undertake new capital spending is so high that, despite historically low interest rates, economic growth is stagnating in many regions due in part to the lack of investment.”
The problem, the OECD says, is that we have a disconnect between the risk assessment of investors and “listed companies, who conduct a large proportion of the world’s capital formation”.
That’s warning sign and “raises the spectre of a potential new crisis and the need to take appropriate measures to anticipate repercussions when one or the other of these views eventually proves to be wrong”.
OECD secretary-general Angel Gurria posed the big question for anyone looking at the difference in both of these outlooks and the inevitable resolution of the debate – “How do we avoid a crisis when this happens?”
Indeed, how do we?