Advanced economy growth weak despite record low interest rates
- The Canadian government plans to invest C$120 billion (approx. US$90 billion) in infrastructure projects over the next 10 years
- In August, Japan announced a stimulus package to boost the economy worth Yen 4.6 trillion (around US$40bn) as part of a wider package which involves further funding from other quasi-government institutions
- In the UK, the Chancellor announced a £23 bn. National Productivity Investment Fund to be spent over the next five years on housing, transport, broadband and R&D; and
- In the US, President-elect Trump plans to invest in infrastructure and make changes to the tax system.
- Current and future government debt can be financed at cheap rates: since the financial crisis, most governments have taken steps to tackle the liability side of their balance sheet. Even though public debt levels remain relatively high by historic standards for some of the G7, the current weighted interest expense paid on government debt is at record lows. In the US, for example, the weighted average interest rate on its government debt is expected to be 1.8% this year, compared to 3.1% a decade ago.
- Using complementary policies can be fiscally more effective: while monetary policy has been expansionary in many advanced economies since the crisis, fiscal policy has been largely contractionary. According to the IMF, government deficits in the G7 have reduced by around 6 percentage points of GDP since 2009. But, using the two policies together will increase the likelihood of influencing aggregate demand.
- Fiscal stimulus can directly deliver longer-term productivity benefits: some policies associated with fiscal expansion can have a positive long-term impact on productivity. For example, efficient infrastructure investment can improve connectivity, while government support for R&D can result in technological advances that make workers more productive.
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Mike DaviesDirector, Global CommunicationsUnited Kingdommike.email@example.com-+44 7803 974 136
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