The long post-financial crisis recovery in the United States has also been one of the weakest since World War II. But recently there have been signs of a pick-up. The second estimate for third quarter GDP growth has been revised up to 3.3 percent, slightly above the 3.1 percent growth recorded in Q2, and significantly higher than the 1.4 percent for the first quarter.
“What is most encouraging about the acceleration is that it has been driven by investment in real assets such as plant, property and equipment, as opposed to relying on inventory building,” says Walter Kemmsies, Economist and Chief Strategist, JLL Ports Airports and Global Infrastructure. “At this stage, there is no evidence of the investment booms that eventually lead to busts and economic contraction. It is also worth noting that reductions in regulations and potential cuts in corporate tax rates are likely driving investment spending higher.”
Infrastructure plan impact
The Trump administration hopes its infrastructure spending plan can have a similarly powerful and sustained impact on the country’s economic growth. The proposed US$1 trillion initiative to rebuild the nation’s roads, bridges, tunnels and railroads has been a key pillar of President Trump’s program. The goal is to stimulate economic and employment growth, and enhance the country’s competitiveness, by transforming America’s existing infrastructure into a world-class network fit for today’s global demands.
Companies need infrastructure – especially transportation, water and electricity – to support their businesses notes Kemmsies. “At present, U.S. infrastructure is underperforming, due to years of deferred maintenance and lack of development. Enhancing the country’s infrastructure would make it possible for companies to focus on expanding their businesses, rather than concentrating on how to stay in business because of the poorly performing infrastructure they currently face.”
Focusing on improvements to America’s export infrastructure in particular would help stimulate job creation. And this would foster a virtuous cycle of growth, by helping expand the tax revenue base needed to invest in additional infrastructure projects.
The scheme initially envisaged by the administration included US$200 billion in direct federal spending over the next decade, to be supported by the issuance of private activity bonds that would help leverage those public funds across a wide range of infrastructure projects.
Kemmsies explains that the Federal government plans to lay out national economic objectives and a roadmap to achieving them, with the private sector investing in the routes and other infrastructure needed for these maps to work. “However, the Federal government has been more concerned with global political stability to date, and has relegated economic policy to an afterthought. Due to that, individual states and the private sector have been stepping up to fill the void,’ he says.
For example, Georgia Ports Authority is working to dredge the Savannah River to accommodate larger vessels, which would enable ships to draft deeper and carry more exports to Asia. Meanwhile, the Port of Los Angeles has given a concession to Saybrook Capital to redevelop a former coal terminal. The objective is to improve container drayage, and thereby reduce congestion and emissions.
How much of the original infrastructure plan will come to fruition, and in what shape, depends in large part on how the President’s 2018 budget proposal progresses through Congress. Different tacks are already apparent, with the House bill shunning market approaches to infrastructure, while the Senate bill favors leveraging scarce federal taxpayer dollars to bring in outside money from states, local governments and private investors.
An alternative proposition, suggests Kemmsies, would be to sell all the existing stabilized public infrastructure, such as toll roads, via shares on the stock market. “In that way, the public sector can acquire the funds needed to invest in unstabilized and new infrastructure,” he says.
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