Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Spotlights AWASH WITH CASH: CORPORATE EXCESS SAVINGS IN G-7 COUNTRIES The corporate sector in the G-7 countries has moved from being a net borrower to a substantial net saver in recent years. It has followed the earlier move by emerging market economies to a net saver status after the Asian financial crises of the late 1990s. Taken together, these developments have substantially altered the financial landscape of the global economy. According to the IMF1, these changes are one factor behind the relatively low level of long-term interest rates at present. NONFINANCIAL CORPORATE SECTOR Percent of GPD Germany Japan 24 6 20 2 0 16 -2 6 -2 12 -6 4 -4 2 -6 8 -10 14 6 12 4 10 2 8 0 -8 1990 1992 1994 1996 1998 2000 2002 2004 4 1980 1985 United Kingdom 14 1990 1995 2000 -14 2005 United States 4 12 2 10 0 8 -2 6 -4 4 -6 1970 1975 1980 1985 1990 1995 2000 2005 11 2 10 1 9 0 8 -1 7 -2 6 -3 5 -4 1970 1975 1980 1985 1990 1995 2000 2005 Gross saving Capital spending (left scale ) (left scale) Net lending/Borrowing (right scale ) Source: Eurostat; national authorities; IMF calculations. What are the reasons for this change in behaviour of G-7 corporations? For the non-financial corporate sector, the IMF arrives at the following explanations: The IMF concludes that the corporate sector in industrial countries will not return to the large negative financing positions of the past. Nevertheless, excess savings are unlikely to be sustained at current record levels, particularly if the degree of slack in the advanced economies continues to decline – thereby encouraging stronger investment spending – or corporate profitability weakens. Therefore, high corporate saving should not be relied on to offset the low saving of the household and government sectors and keep long-term interest rates at present levels. Indeed, without some increase in household and government saving in the coming years, changing corporate behaviour will likely start to put upward pressure on interest rates and could exacerbate the current pattern of global imbalances by lowering total private saving in deficit countries. HCS • Operating profits are not abnormally high, although they have been boosted by low interest rates and a generalised reduction in corporate tax payments. If companies consider these factors unlikely to be sustained in the future, they may hold back on investment and instead raise their savings. • Technological change has reduced the relative price of capital goods, reducing the nominal spending needed to achieve a given volume of capital. • Companies have increased their purchases of assets abroad, shifting resources from domestic capital accumulation. • Companies have increased their desired cash holdings, partly as a reaction to the more uncertain operating environment, the increasing role of intangible assets in a knowledge-based economy, and possibly the uncertainties associated with having to meet currently unfunded pension liabilities. 1 International Monetary Fund, World Economic Outlook, April 2006, Washington, DC, Ch. IV. 53 CESifo Forum 2/2006