Crisis and Global Demand: From the Short-Term to the Medium-Term

If we analyze the global macroeconomy in the medium-term, world consumption should tend to decrease vis-à-vis the increase of the US savings rate as a result of the crisis. At the same time, it is hard to imagine that investment will grow if consumption does not recover first. In this context, how will the consumption drop be offset when the recent increase of public deficits will be reversed in order to ensure fiscal sustainability? The solution may come from an increase in consumption in the rest of the world, especially in developing countries, and from a change in the composition of demand due to an improved consumption in these countries that simultaneously fosters investment. Thus, the countries that invest in restructuring their economies will emerge from the transition with a higher capital stock per capita and, therefore, a higher income per capita.