Enough bang for the buck?

After a decade of declining capital spending, public infrastructure investment is surging in the US and Europe. Scaling up spending on infrastructure has become an essential element of the fiscal stimulus to boost economies after Covid-19. The current infrastructure impulse in the US is likely to become the largest public investment program since the 1970s, with infrastructure investment rising from 1.8% of GDP to 2.3% of GDP until 2030. In Europe, however, the scale is somewhat smaller and the duration shorter: France’s ratio will increase from 2.5% to 2.7% of GDP until 2027, Germany from 1.1% to 1.4%, Italy from 0.9% to 1.3% and Spain from 1% to 1.5%. 

All this investment should have a significant positive impact on growth: In the US, the infrastructure package should add about 0.9pp to GDP over the next three years, while in Europe the impact will be largest for Spain (+0.90pp) and smallest for Germany (+0.35pp). Well-planned infrastructure investment can permanently raise potential output by boosting demand in the near term and supply in the long term. In particular, more investment in sustainable infrastructure helps facilitate the transition towards low-carbon, more environmentally friendly economic models and enhances socio-economic resilience. However, significant financing will have to be mobilized from the private sector since countries often lack sufficient fiscal capacity to address the related investment needs. 

Public investment can stimulate private investment through rising confidence about higher growth in the future. We estimate that the current infrastructure plans will crowd-in private capital of up to USD100bn annually in the US, EUR50bn in France and EUR10bn in Germany until 2025. We find that large debt-financed infrastructure investment is particularly powerful in raising private participation in infrastructure, albeit with a lag of about two years. Over the longer term, additional infrastructure investment is expected to boost potential output by 0.4pp and 0.2pp in the US and Europe, respectively. However, the current scale of additional capital spending may not be sufficient to meet the investment demands consistent with the intermediate goal to reduce net greenhouse gas emissions by more than 50% from their 1990 levels until 2030. Since private capital through crowding-in effects can partially meet the estimated annual investment shortfalls (USD210bn in the US and EUR137bn for the four largest European economies), the green transition will place a premium on more efficient public investment and making infrastructure a more accessible asset class for investors. 


Alexis Garatti
Euler Hermes
Andreas Jobst
Allianz SE
Pablo Espinosa Uriel
Allianz SE