Published : Oct. 1, 2014 - 21:08
The International Monetary Fund is urging countries to boost infrastructure spending to strengthen the sluggish global recovery.
Increased investment in infrastructure such as roads and bridges is “one of the few remaining policy levers available to support growth” in advanced economies, given that monetary policy is already loose, IMF staff said Tuesday in a report to be included in its next World Economic Outlook. “In all economies it would help boost medium-term output,” they said.
Policymakers are looking for ways to speed up growth amid a global recovery that has repeatedly underperformed the IMF’s forecasts. The Washington-based lender will release its latest World Economic Outlook on Oct. 7, ahead of its annual meeting in Washington from Oct. 10-12.
There’s still “substantial economic slack” in many advanced economies, and inflation remains too low in the eurozone, IMF staff said in the report. In emerging markets, growth has fallen below levels in the decade before the financial crisis.
The disappointing results raise the prospect that global demand “will remain persistently weak,” IMF staff said, citing the theory of “secular stagnation’’ advanced by economists such as former Treasury Secretary Lawrence Summers.
At a meeting this month in Cairns, Australia, finance ministers and central bankers from the Group of 20 expressed concern about the “uneven’’ recovery and said investing in infrastructure was “critical to boosting demand and lifting growth.’’
IMF staff looked at historical evidence and employed simulations to analyze the effects of infrastructure spending. They found that spending increases gave a stronger boost to demand when there is slack in the economy and monetary policy is loose. In such cases, investment may actually decrease the ratio of public debt to gross domestic product, according to the IMF.
In emerging markets such as Brazil, India, Russia and South Africa, “infrastructure bottlenecks are not just a medium-term worry but have been flagged as a constraint even on near-term growth,” according to the report. (Bloomberg)