J.L.M. Campuzano (Spanish Banking Association) | It’s undoubtedly an interesting theoretical debate. The most common answer is that crises with financial origins are difficult to overcome. And here the necessary financial deleveraging and excess productive capacity is being alluded to as way of explaining the slow recovery, despite the fact that production has returned to pre-crisis levels.
Are these explanations really sufficient after what has been nearly nine years since the start of the crisis? I am thinking particularly now of the improvement in financial conditions, with the main central banks implementing up to the hilt traditonal and non-traditional expansive monetary measures. Have they done enough? Perhaps it’s simply that lowering the cost of investment is not sufficient.
You already know that the Fed is normalising its monetary policy. And in the last meeting of the Bank of England, three board members said they were open to hiking interest rates. The ECB and the BOJ are already debating what strategy to follow after putting a specific floor on rates. And that’s in spite of the weakness in investment. But in the context of a global economic recovery, which in principal is stronger than expected. Taking everything into account, it’s true that growth in productive investment is recovering in the developed countries, although its stock is still well below pre-crisis levels. Whatsmore, it’s difficult to evaluate in this strong rise in investment how much corresponds to new investment and how much to fixed capital consumption.
That said, in the developing countries it’s not only the stock but also the pace of investment growth which is below pre-crisis levels. And well below the historic average.
According to IMF data, the pace of growth of productive investment has slown in economies which are emerging and in the process of developing from levels of 10% in 2010 to 3.6% at the moment. Levels of growth which are one digit lower than the two digit levels prior to the crisis and lower than the historic average. And it’s generalised: last year, over 60% of countries’ investment growth was below their historic average, the biggest figure in over two decades (with the exception of the year 2009). But the gap has been more evident in the big economies and in those countries which export raw materials, with a third of the “adjustment” down to China and more or less the same down to Brazil and Russia.
The second of the graphics above reflects the closing of the gap between per capita investment growth in the emerging and developing economies. Naturally enough, there are many contrasting arguments to explain it: the drop in raw material prices, the decline in trade growth, the weakness itself of the growth in the developed countries and uncertainty. Uncertainty has many faces: economic, financial and political. We in Europe all know this very well.
As far as the developed economies are concerned, average growth between 2010 and 2015 has been 2.1% below the historic growth rate. That said, in 2016 it returned to average historic levels.