Prospects for investment are improving in the US and UK, while in Continental Europe and Japan companies are still cutting capital expenditure. Investment has been one of the strongest components of US GDP over the past year, and in the UK a recent CBI survey reveals a recovery in investment intentions. Low interest rates and improving profitability are underpinning Anglo-Saxon investment plans while Japanese corporations are feeling the squeeze from the strong yen and rising unit labour costs. Similarly, Continental European companies are still adjusting to lower demand while in Germany higher labour costs are adding to the pressure to restructure. However, these cyclical trends disguise the longer term picture. Despite the downturn in capital expenditure in Germany and Japan, total investment (public plus private) is still a higher proportion of their national income than in the US and UK. Japan's investment as a share of GDP was over 30% in 1992, twice the rate in the UK and US. In the same year Germany invested a fifth of its national income, one third more than its Anglo-Saxon competitors. The UK's investment performance looks even weaker when compared with the Dynamic Asian Economies (DAEs) and China, where, says Schroder Economics, over a third of national income is invested each year. Clearly, these economies need to build up capital stock, but the pace of investment indicates that they are rapidly aquiring the plant and equipment of their developed world counterparts. High investment rates should support strong growth over the next five years and indicate increased pressure on the industrialised nations.
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