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Thrifty firms and thriftless households are risks to growth
Publication year - 2019
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.12392
Subject(s) - incentive , economics , investment (military) , stock (firearms) , asset (computer security) , monetary economics , financial crisis , business , market economy , macroeconomics , computer security , politics , political science , computer science , law , mechanical engineering , engineering
▀ Structural changes in savings behaviour by households and especially firms in advanced economies in recent years pose threats to global growth. Household savings may have been compressed by high wealth levels, pointing to the risk of a sharp rise in saving and fall in spending if asset prices correct. One positive compared to a decade ago, however, is that US personal saving is less depressed than then. ▀ The bigger risk is arguably on the corporate side, where firms' net savings have risen on average by 2–3 percentage points of GDP since the early 1990s. This has been accompanied by weakening investment, especially in net terms. The reasons behind this are varied – post‐crisis caution, demographic factors and a shift to R&D intensive industry may all have played a role. But a key factor is likely to have been changes in incentives facing executives, leading them to prioritise stock buybacks over investment. This risks creating a long‐term low‐growth feedback loop.