Infrastructure Boom
The biggest investment boom in history is under way. Over half of the world’s infrastructure investment is now taking place in emerging economies, where sales of excavators have risen more than fivefold since 2000. In total, emerging economies are likely to spend an estimated $1.2 trillion on roads, railways, electricity, telecommunications and other projects this year, equivalent to 6% of their combined GDPs — twice the average infrastructure- investment ratio in developed economies.
Morgan Stanley predicts that emerging economies will spend $22 trillion (in today’s prices) on infrastructure over the next ten years, of which China will account for 43%. China has spent more (in real terms) in the past five years than in the whole of the 20th century.
Never before has infrastructure spending been so large as a share of world GDP. Even at the peak of Britain’s railway mania in the 1840s, total infrastructure investment was only around 5% of GDP; China is already spending around 12% of its GDP.
The World Bank estimates that a 1% increase in a country’s infrastructure stock is associated with a 1% increase in the level of GDP.
Goldman calculates that a 1% increase in the share of people living in cities leads to a 1.8% increase in demand for installed electricity capacity. A 1% rise in income per head leads to a 0.5% increase in demand. Putting this together, electricity capacity may have to surge by 140% in China and by 80% in India over the next decade.
A 1% increase in income per person leads to a 1.4% increase in the number of passengers travelling by air, so the number of air passengers could jump by more than 350% in China and by 200% in India over the next decade.