One big reason the global economy is spinning its wheels: some of the world’s richest governments are being tightwads.
Group of Seven governments have been cutting their investment spending since a brief surge as the global financial crisis took hold. As a share of the group’s gross domestic product, those expenditures were 3.3 percent in the first quarter, matching the lowest since 2000 and down from 4 percent at the start of 2009, according to numbers crunched by Oxford Economics.
The reluctance to spend on longer-term infrastructure is striking at a time when policymakers and economists are debating ideas from “helicopter money” to higher inflation targets to counteract the risk of long-term stagnation. Central banks in Europe and Japan are still buying up bonds to battle deflation risks, hoping that private companies will use lower long-term interest rates to borrow for their own investment and hiring projects.
“There is a strong case to be made that the G-7 economies should engage in ‘precautionary’ fiscal stimulus centered on investment spending,” Oren Klachkin, senior economist at Oxford Economics in New York, said by email. “It could potentially boost downbeat productivity growth, an issue plaguing many advanced economies.’ ”
Boosting government investment by 1 percent of gross domestic product over two years could raise output in a G-7 economy by between 0.6 percent and 1.4 percent by 2017, according to Oxford Economics calculations. The power of a coordinated move would be even stronger and could mostly pay for itself as output and tax receipts rise.
That kind of a step could take pressure off central banks, and may even convince global CEOs that it’s a good time to open their wallets as well.
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