With vaccines around the corner, there is increased hope that the pandemic could soon be under better control. That said, the need for cooperative efforts to work toward a better future has never been greater. Priority areas relate to the need to produce and distribute vaccines globally, tackle climate change, and bolster the economic recovery from the crisis.
An IMF report published ahead of the G20 leaders meeting argues that a synchronized infrastructure investment push could invigorate growth, limit scarring, and address climate goals. In fact, when many countries act at the same time, public infrastructure investment could help lift growth domestically and abroad through trade linkages. This positive “spillover” effect could provide an additional boost to global output.
The spillovers created by higher demand are particularly impactful when economic conditions are weak and interest rates low. When economic conditions are strong, higher government spending may push inflation above the central bank’s target and trigger a monetary policy tightening, offsetting some of the initial
Our Chart of the Week illustrates this point. If economies with room to spend were to increase infrastructure investment spending by ½
Important additional benefits occur from specific types of infrastructure spending. For example, if such spending prioritizes green investments, it will also strengthen resilience and allow for a cleaner world for the next generation. Efficient mass transit projects, smart electricity grids, and retrofitting of buildings to enhance energy efficiency could be prioritized. Job-intensive public investment such as infrastructure maintenance or public works that are implemented efficiently are also of the essence.
When policymakers across countries work together and implement high-quality, smart spending on infrastructure, the impact of their individual actions can be amplified and provide further support for all economies.