Infrastructure, Secular Stagnation, and the Waiting for Godot Economy

A previous post, here, highlighted the very low interest rates that prevail in the “waiting for Godot” global economy. These rates may reflect a post-crisis, paradox of thrift economy, with uncertainty about the future raising savings, driving interest rates down, and retarding investment. Historically low interest rates are indicative of savings in excess of investment. If the global economy was at or above full employment, we could be reasonably confident in saying that the problem was too much savings; with the global economy continuing to labour under a chronic insufficient global aggregate demand, the problem may be too little investment.

Regardless, the weak pace of global growth associated with these interest rates is worrisome. One bright spot in the immediate post-crisis period had been the relative strength of emerging market economies, which outpaced the advanced economies burdened by the overhang of financial excesses (Canada being a fortunate exception) and, in Europe, banking and monetary union troubles. But, as the Brookings-Financial Times Tiger index of global economic activity suggests, growth in the emerging markets has under-performed relative to the advanced economies (below). And risks to the outlook for emerging markets may be deteriorating. Weaker growth in the emerging markets would not, of course, be helpful to advanced countries.