Advanced Economy Investment Spending to Carry Heavier Burden

A rebound in the importance of investment spending in advanced economy output expected by the International Monetary Fund will be critical to the fortunes of the mining industry over the coming five years. The half yearly World Economic Outlook released on Tuesday by the IMF showed the investment contribution to GDP in emerging economies as having stopped rising (see first chart) while the investment contribution in the advanced economies is expected to push higher, albeit from historically low levels, in 2015 and beyond. Relying heavily on private sector decisions, advanced economy investment spending is more discretionary and potentially variable than emerging economy development spending. Not surprisingly, when the investment contribution is rising, the metal intensity of overall output is increasing and raw material usage rates are at their strongest. This connection is highlighted in the second chart showing global steel production and changes in the investment intensity of global GDP since 1980. Other factors are also at work but variations in the investment contribution make an important difference to the momentum of raw material consumption growth.