>FLASH ECONOMICS (ECONOMIC RESEARCH)

For growth to pick up, it must be possible to provide long-term funding

Sustainable global growth demands the provision of funding for long-term projects: productive investment, public investment (transport, energy, environment, water, agriculture, etc.). Unfortunately, the financial crisis has jeopardised this ability to obtain longterm funding at a reasonable cost:

■ equity investors are discouraged by risk, successive stock market crisis, and regulations;

■ the medium- and long-term funding costs for banks are high, and are likely to remain so due to heightened perception of bank risk, with toxic assets remaining present on banks' balance sheets for a long time; this results in high costs of medium- and long-term loans.

It might be thought therefore that there should be a sharing of tasks, with the banks providing short-term funding and governments long-term funding. However, the enduring deterioration in the public finance situation could clearly also imply a high cost, in the future, of long-term funding for governments, which is not apparent at present due to the monetisation of public debt by central banks. The most reasonable policies are therefore probably transformations to increase the proportion of long-term savings in total savings and to increase the weight of equity investments in the portfolios of institutional investors, when it is low; efforts should also be made to mitigate the perception of bank risk (by reducing toxic asset portfolios).

This point is obvious. Global growth needs:
■ productive investment, currently far weaker (Charts 1A and B), with a need for emerging countries to increase per capita capital to increase per capita income (Chart 1C);

■ investment in infrastructure (Table 1), the United States being an extremely impressive case (Table 2);

■ investment in energy production and savings (Chart 2A), due to catching-up of per capita consumption levels in emerging countries (Chart 2B), in water purification (Table 3), and in productivity improvements in agriculture due to changing food habits (Table 4) and population
changes (Chart 3), which entail a permanent increase in needs.


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