Faced With Declining Economic Growth G7 Countries Need To Increase Infrastructural investment - Alldamoney

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Faced With Declining Economic Growth G7 Countries Need To Increase Infrastructural investment

The stagnant or declining growth witnessed by G7 Countries in recent years been discussed at the World Economic Forum

In recent years most large economies continue to have sizeable negative output gaps. In the U.S. for example policymaking circles there have heard recurrent calls to increase infrastructure investments. Of all G7 countries, Only Germany and the UK are near to closing the gap while Italy is furthest adrift with France and Japan still running behind the GDP-weighted average for the group.

This is surprising as an increase in infrastructure spending could go a long way to solving several pressing challenges that the G7 economy faces.Eight years after the financial crisis the amount of spare capacity in MOST of these economies show how they are operating below their potential level of output.
In the first quarter of the year, The Eurozone grew at an encouraging rate of 0.6% quarter-on-quarter higher than expected and slightly above trend. While data show that the US grew at a lethargic rate of 0.1% quarter-on-quarter; and also the UK saw growth slow to a slightly-below-trend rate of 0.4% in the first quarter.

So will infrastructure investments boost growth rates? To invest more in infrastructure is a necessary condition to boosting short-term demand and to ensure that the supply-side of the economy grows more strongly in the long term.

When considering where to target investment based on their infrastructure project experience PwC’s economists set out four principles for policymakers to keep in mind:
To meet the need: it’s important to identify both the current and future needs and supplement the base case analysis with a range of scenarios that includes both optimistic and pessimistic cases.
Other objectives consistency should be ensured: the government’s broader policy agenda, including social and environmental as well as economic goals, should fit into its planned infrastructure projects

The   benefit the wider economy must be ensured: relative to a scenario where the project does not go ahead, the assessment of the potential impact should factor in both the long-term effects as well as the direct and indirect impacts.

To Ensure financial transparency and responsibility: Embarking on an infrastructure-led programme seems like a sensible way to boost aggregate demand and long-term supply capacity for governments with a relatively low net debt position and healthy public finances (e.g. Germany and Canada), however if the budget deficits is high for example the UK then the issue of prioritizing infrastructure investment over current spending could arise.

Overall the most pressing economic challenges for G7 economies concern how to provide satisfactory living standards for the vast majority of their people. Such growth requires two components: rapid overall productivity growth, and a stabilization (or even reversal) of the large rise in income inequality that occurred during  the Recession, a rise in inequality that kept overall productivity growth from translating into living standards growth for most people.

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