Investment Dearth?

The idea that there was a global savings glut now having gone out of fashion, some are presently arguing that what we have is an investment dearth (my own view is that these two effectively mean the same thing, since the issue is a relational one). More evidence for this investment dearth hypothesis comes today from the UK.

UK Business investment grew sluggishly in the third quarter, official figures showed, confirming survey evidence that British-based companies are cautious about capital spending even though profit levels are high.

As the FT also notes:

Just as in other European countries, companies have decided to save most of the money they have been making rather than risk investment in new opportunities to generate profit in the future. The reluctance of companies to invest when interest rates are low and the return on the existing capital stock is high has puzzled economists for some time.

Dave Altig had a piece earlier in the week about the BoE rate decision wher he tries to put a brave face on the UK data. This investment news is another little bucket of cold water for the upside optimists. I’m more or less neutral here. The monetary policy committee intimate that the weakening of investment intentions “may also reflect uncertainty about the near-term outlook for the economy in the face of sluggish consumer spending and higher energy prices”. Dave concludes that “Perhaps the uncertainty will lift sooner than later”, and I agree, I’m sure it will: I’m just not sure which way the resolution of the quandry will lead us.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".