It’s all about investments

Global growth in the coming year will have to come from investments.

Net exports is a zero sum game, not all countries can grow their net exports at the same time.

Governments from Japan to the US will have a hard time beefing up spending any further. That’s just not going to happen.

Consumers in Europe and the US have too much debt, too little equity and while employement may improve somewhat, it is unlikely to provide a major boost.

Meanwhile Japan is turning from being a nation of savers to a nation of spenders, but that is due to having the worst demographic profile in the world. The Japanese are simply spending more of their income because they are getting older and now drawing more on their retirement savings. But their income is not growing much. Spending of retirement savings have the potential to lead to higher interest rates in Japan, which will be a drag on spending. Japan is simply not in a position to boost private spending much.

And for those who have high hopes for the Chinese to lower their savings rate, I think you have to be patient. The Chinsese have a high savings rate because they save for retirement, housing, education of their children and future medical expenses. That will not change any time soon. For the Chinese to spend more they need higher real wages. While higher nominal wages are likely, there is also mounting inflation pressure in China. Clearly there could be some upside to Chinese private consumption, but in the short term i.e. the next 2-3 years I think it’s hard to envision a major boost to the global economy based on Chinese private consumption.

Which leaves us with Investments as the only possible source substantial global growth in the next few years. But we already have too much capacity in many industries. So I think you have to look towards industry where over-capacity is not a problem: mining, biotech, certain information and communication technologies, agriculture, clean/green technologies and infrastructure.


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