Capital investment is one of the fundamental building blocks of future productivity growth and anticipating future developments in global investment is a major concern for policymakers. This note makes two observations: 1) Despite weak investment in advanced economies, investment is not weak globally – as a share of world GDP, capital investment is currently at the highest level since 1990; 2) Emerging market economies, particularly China and commodity exporters, disproportionally contributed to the recent strength in global investment, but that contribution is now at risk.
Ambrogio Cesa-Bianchi and Alessandro Rebucci
In some parts of the emerging world, housing markets have grown well ahead of income in recent years. Will a US monetary policy normalisation bring about a correction in house prices as the search for yield unwinds and capital flows back to the US? Looking at the past through the prism of a structural VAR, we think the answer is “yes it will”. Shocks to global liquidity have much larger effects on house prices in emerging markets than in advanced world economies. A tightening in global liquidity conditions also leads to a rapid capital account reversal, exchange rate depreciation and hence a sharp fall in consumption.