Saxo Bank: Investment in Education, Internet, and Infrastructure Key to Addressing Fiscal Deficit

The plans of politicians to address fiscal deficits could be one of the indicators of what 2017 will bring us for the global economy to seriously start moving in positive trends. If they turn to targeted investments in education and basic infrastructure needs, it will certainly bring the much-needed turnaround, but if we continue to hear about the expansion of social assistance programs, we will get a counterproductive effect that does not contribute to economic growth. This is the message from Steen Jakobsen, Chief Economist at Saxo Bank.

Signs of change are already visible in the policies of central banks. They have already taken certain steps, such as the Bank of Japan, which announced it would stop its infinite quantitative easing program, while the European Central Bank could weaken its purchase of government bonds, with the U.S. Fed already moving in that direction. ‘Helicopter money’ models, as opposed to QE programs, will continue to be introduced throughout 2017, somewhat through the back door, as an idea of debt monetization, or constant monetization of the budget deficit to stimulate economic growth. However, when it comes to the fiscal deficit, it is primarily necessary to look at which deficit politicians and governments will choose and where the actual increase will occur, believes the lead analyst of the Danish investment bank.

– If they allow a deficit that supports state-owned companies and social assistance programs, we will get a counterproductive result. However, if investment in infrastructure, as the words we constantly hear in the news, is turned into action, only positive consequences are possible. In this context, infrastructure also means investing in the education system, as one of the most important possible investments in a society. Then there is technology and the internet, and of course better ports or roads, which by definition have a stronger return on investment than the first option. It is clear that this reduces the burden on the economy, people are more educated and productive, and the flow of goods and services is more dynamic and better. This is the remedy we are waiting for to recover economies, emphasizes Jakobsen.

However, experience and trends show that caution is needed, and Jakobsen concludes that he is very skeptical whether politicians will notice the difference that the moves bring long-term benefits for a society.