Rich countries are facing the risks of weak demand, and the time is right for an infrastructure push, the International Monetary Fund (IMF) said in a report on Tuesday.
Borrowing costs are low and demand is weak in advanced economies, and there are infrastructure bottlenecks in many emerging markets and developing economies, the IMF said in the analytical chapters for its World Economic Outlook.
“Public infrastructure is an essential factor of production. Increasing public infrastructure investment raises output in the short and long term, particularly during periods of economic slack and when investment efficiency is high,” the report noted.
In a sample of advanced economies, the report said, a one percentage point of GDP rise in investment spending increases the level of output by about 0.4% in the same year and by 1.5% four years after the increase.
Also in this report, IMF said systemic risks to the global economy had been diminished since 2006 by the significant decrease in global current account imbalances. However, some concerns remained. Global current account imbalances have narrowed by more than a third from their peak in 2006. Key imbalances - the large deficit of the United States and the large surpluses of China and Japan - have more than halved.
The narrowing in imbalances has largely been driven by demand contraction in deficit economies, the report noted, and underlined that “The narrowing of imbalances is expected to be durable, as domestic demand in deficit economies is projected to remain well below pre-crisis trends.”
Risks of a disruptive adjustment in global current account balances have decreased, but global demand rebalancing remains a policy priority.
