Angry Bear's pgl did us all a favor this weekend by reminding us that Brad Setser previously reminded us about the International Monetary Fund's recent analysis of global saving and investment. pgl has been out front in making the case --in his latest installment, with well-constructed supply-of-saving and demand-for-investment graphs -- that whatever the ultimate sources of low worldwide interest rates, they are working through both investment and saving choices.
There is a hardly a clearer demonstration that pgl is right than this picture from the IMF report:
For the East Asia economies, the recent story is clearly an investment bust. For oil producing countries, it's an investment bust accompanied by a saving boom. And for China, it's a boom in both saving and investment -- with saving being the larger of the two.
Among the several interesting items in the IMF chapter is the finding that you can "explain" saving pretty well with a simple statistical model, but get nowhere close to capturing investment outcomes:
What that picture means is that a few well-chosen "fundamentals" -- changes in income and wealth, capital market development, demographics, and fiscal policy -- are sufficient to remove most of the mystery from global saving patterns over the past eight years. That goes for both industrialized countries and emerging-market economies.
No such luck with investment. Some thoughts on that to follow.