(PFM Force) – Joe Biden’s investment plan in infrastructure aims to reach $ 2250 billion, including $ 1700 billion for “physical” projects. The current state of the core infrastructure often requires this effort, and there are positive changes for transportation and electric vehicles, construction, utilities, manufacturing and research, says Lombard Odier.
This is an image that was first highlighted by Professor Vaklav Smil, a professor at the University of Manitoba (in Winnipeg, Canada). The world-renowned expert, in particular, is considered one of the most relevant on key issues related to energy (see Energy at the crossroads: global views and uncertainties And Global disasters and trends, the next fifty years), Especially described by Bill Gates as his favorite writer, but not yet translated into French!
In his work Creating the Modern World: Materials and Dematerialization, In three years – from 2011 to 2013 – China used 50% more concrete than the United States … throughout the twentieth century. As China produces more concrete each year than any other part of the world, this trend is unlikely to change, especially as San Francisco’s Golden Gate Bridge, which is twenty times more dedicated to erecting massive structures such as the Hong Kong-Zhuhai-Macau Bridge, required 1.08 million cubic meters of cement to build.
The gap says the United States has had decades of slow-moving investment to renovate its aging infrastructure, thanks to a $ 2.250 billion budget. Stephen Monier, Investment Director, Lombard Audio, explains that this is a unique opportunity for investors to invest in this significant initiative.
Many neglected infrastructure
The post-epidemic economic recovery is an opportunity to revamp infrastructure, which has been dormant since the Great Depression of 2008-2009. The U.S. Employment Program, proposed by the Biden administration on March 31, aims to transform U.S. public investment over the decades, thereby laying the economy on a stable foundation for the future. The project demonstrates that the United States ranks 13th in the world for the quality of its infrastructure. Over the past sixty years, U.S. federal government spending on infrastructure has fallen by more than half as a percentage of GDP, from 3.8% in the 1960s to 1.6% in the last decade.
Massive civil engineering projects – especially during the Roosevelt New Testament – that took place in the last century need to be strengthened, replaced or recycled. Last month, the American Society of Civil Engineers (ASCE) released its latest three-year report on the country’s infrastructure. Going through this document, the poor condition of dams, roads, roads, schools, public transport systems, hazardous waste management systems, air transport infrastructure etc. Explicit.
Dirty roads, railways and dams
Some examples: Between 2015 and 2020, the United States derailed 30 kilometers of railroad tracks (several hundred trains derailed each year, most of the time without extreme luck). 46,154 bridges, 7.5% of the total, show structural defects. At current rates, it takes 40 years to repair them … except for that time the park will continue to deteriorate, with 42% of all bridges in the country already 50 years old and over. An average of one leak occurs every two minutes in a waterway, resulting in the loss of drinking water equivalent to 9,000 municipal swimming pools each day. The rate of dams at high risk of accident has increased and now more than 2,300 structures are of concern.
ASCE estimates the investment required to repair the slowdown is $ 2.390 billion over the next decade.
Today half of the total cost of the U.S. project goes to repairing roads and railroads and upgrading water pipes and airports. $ 620 billion is to be spent on the transportation network, including recharging electric vehicles and establishing global access to high-speed Internet.
Small inflation risk
Stephen Monier believes spending will spread over many years, which will reduce their inflationary impact. Not to mention the unforeseen difficulties of stopping large infrastructure projects in general (“Big Dick”, road tunnel in Boston, Massachusetts: Discourse: These works were first approved in 1982 and, with a budget of $ 2, $ 6 billion, lasted almost six times longer than expected Much).
For the U.S. administration, the revitalization of infrastructure will have the added benefit of creating jobs. U.S. unemployment fell to 6% earlier this month after the epidemic rose to nearly 15%. But this ratio is still far from the level, The lowest in 50 years, recorded in 2019. In fact, there are still more than 10 million more unemployed than before the epidemic, which strengthens the argument in favor of counter-cyclical infrastructure spending for the economy. The Federal Reserve, for its part, has said it will measure the strength of the economy by looking at long-term employment trends and looking only at average inflation levels.
As a result, the investment director of Lombard Odyssey does not believe that the link between inflation and these costs will trigger a rise in inflation; Also, it should not have a significant impact on the dollar.
The benefits of these spending plans for the US economy are to be seen in the next eight years, the strategist hopes, while the impact of the parallel expected tax increases will only be felt after fifteen years.
The $ 1.7 trillion project is earmarked for physical projects that, in the long run, will benefit sectors such as transportation and electric vehicles, construction, utilities, manufacturing and research. The project will also support the industrial sector, the metals and ores sector and the semiconductor industry.
On the downside, the technology, health and consumer goods sectors could be hit hard by corporate tax hikes. Overall, if one were to seek such an increase to offset the cost of infrastructure projects, the consensus would be an average 7-10% reduction in the revenue of the S&P 500 per share.
The external economic environment will also affect the US dollar. If the United States continues its monetary stimulus while other parts of the world are stagnating, its currency will appreciate. Conversely, improved global growth and international trade may reduce demand for the dollar.
An agreement is found in Congress
This envelope should win the support of Joe Biden’s political opponents in Congress, Stephen Monier recalled, referring to “some compromises”. “We expect a close end to the original plans in the third quarter of this year. Spending is gaining some support among Republicans because the infrastructure plan has already been designed under the administration of Trump. The mistakes made ten years ago, the economic impact of the epidemic and the competition with China in the wake of the financial crisis combined with the desire to avoid politics. It could help the political process, “he said.
If the need to invest in infrastructure is particularly pressing in the United States, it is not just for this country.
In China, tr 28 trillion in 20 years for infrastructure
After decades of investment to modernize its economy in the forced march (hence the concrete mentioned above is plentiful), China is at a different stage of development; The country already allocates more than 5% of its GDP to infrastructure projects. And plan to spend more consistently than in other parts of the world. Over the next two decades, the world’s second-largest economy … will need to allocate $ 28 trillion to its infrastructure if it is to keep pace with its growth, according to World Bank estimates in 2017.
EU infrastructure investment has fallen since 2010 in the wake of the major financial crisis. In 2017, EU spending in the region was equivalent to 2.7% of GDP, and this persimmon has wreaked havoc even in the richest countries of the continent, underscoring Stephen Monier. Germany is one of the worst digital networks in the world’s advanced economies, and according to the Organization for Economic Co-operation and Development, other countries such as Spain and Ireland have cut corners. Expenditure to deal with the financial crisis of 2008 -2009. In the UK, the Treasury has pledged to invest $ 100 billion in economic infrastructure spending.
The European Union has already set its spending plan. Last year, it established a stimulus package of 1. 1.8 trillion, which includes its seven-year budget of 1 1.150 billion and the புதிய 750 billion “new generation” stimulus fund. The 27 member states aim to transform their infrastructure in the areas of energy, transport, agriculture and health. In all, about 1,000 billion are linked to the Union’s target of net carbon neutrality by 2050.
Guilloma Bayer – © 2021 PFM Force