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Economic growth

OECD Warns of Threat to Global Growth from Weak Business Investment

Strategic Insights

— 2 min read

The Organisation for Economic Co-operation and Development (OECD) has warned that weak business investment is threatening global growth, with corporate spending in most advanced economies failing to return to pre-financial crisis trends. The pandemic has exacerbated this issue, with net investment across OECD nations dropping from 2.5% of GDP before the 2008 crisis to 1.6% of GDP for the median country. According to OECD Chief Economist Alvaro Pereira, if corporate spending on new projects and facilities does not pick up, countries will "not be able to sustain growth".

Key Takeaways:

  • The OECD has warned that weak business investment is threatening global growth, with corporate spending in most advanced economies failing to return to past trends after the financial crisis and pandemic.
  • Net investment across OECD nations has dropped from 2.5% of GDP before the 2008 crisis to 1.6% of GDP for the median country.
  • Only two advanced economies of 34 tracked by the OECD had surpassed their pre-financial crisis net investment trends as of last year: Israel and Portugal.
  • Just six are above pre-Covid investment trends, including Canada, Italy, and Australia.
  • Average investment among advanced economies is 20% below levels that would have prevailed if pre-financial crisis trends had continued, according to an OECD working paper.
  • This is 6.7% below the pre-Covid trend, indicating a sustained decline in business investment.
  • "Pervasive" policy uncertainty is a key cause of the phenomenon, according to Pereira, with the OECD citing Trump's chaotic tariff rollout as a fresh reason for corporations to hold back from big spending.
  • Investment has fallen across all major industries, with the OECD warning that if current elevated levels of uncertainty prevail, real investment could be trimmed by 1.4 percentage points by the end of next year.
  • The OECD has highlighted the tension between shareholder returns and investment, with companies in many nations boosting investor payouts compared with pre-crisis trends.
  • In the UK water sector, English water companies have paid out £83bn in dividends since privatisation, more than a third of the £230bn spent on infrastructure in the same period.

Statistics:

  • Net investment across OECD nations has dropped from 2.5% of GDP before the 2008 crisis to 1.6% of GDP for the median country.
  • The drop in net investment is 20% below levels that would have prevailed if pre-financial crisis trends had continued, according to an OECD working paper.
  • This is 6.7% below the pre-Covid trend, indicating a sustained decline in business investment.
  • Investment has fallen across all major industries, with the OECD warning that if current elevated levels of uncertainty prevail, real investment could be trimmed by 1.4 percentage points by the end of next year.

Sources:

  • Financial Times
  • Organisation for Economic Co-operation and Development (OECD) working paper.

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