The Global Investment Slowdown : Challenges and Policies

Investment growth in emerging market and developing economies (EMDEs) is expected to remain belowits average rate of the past two decades through the medium term. This subdued outlook follows a decade-long,geographically widespread investment growth slowdown before the COVID-19 pandemic. An empirical analysis covering2000-21 finds that periods of strong investment growth were associated with strong real output growth, robust realcredit growth, terms of trade improvements, growth in capital inflows, and investment climate reform spurts. Eachof these factors has been decreasingly supportive of investment growth since the 2007-09 global financial crisis.Weak investment growth is a concern because it dampens potential growth, is associated with weak trade, and makesachieving the development and climate-related goals more difficult. Policies to boost investment growth need to betailored to country circumstances, but include comprehensive fiscal and structural reforms, including repurposing ofexpenditure on inefficient subsidies. Given EMDEs’ limited fiscal space, the international community will need tosignificantly increase international cooperation, official financing and grants, and leverage private sector financingfor adequate investment to materialize.