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In contrast to the availability of labour, the amount of new capital investment and its productivity were critically important in explaining this declining growth performance. Since 1970 (unfortunately, consistent data is not available to consider investment trends before that date), there has been a steady fall in the share of investment in all of the major high-income economies (measured as the share of new investment in Gross Domestic Product, GDP – Figure 2.2). This was particularly the case for the US. However, similar trends can be observed across the board in the major economies, especially Italy and the UK.

Figure 2.2 Share of investment in equipment and other physical assets (Gross Capital Formation) in GDP

Source: data from World Bank World Development Indicators

At the world level, considering the average of all economies irrespective of size, the share of new investment in GDP fell between 1970 and 1990, and stabilized thereafter. It is worth noting that much investment takes the form of replacing worn-out ‘depreciated’ productive capacity, buildings and infrastructure. In general, it is only when investment exceeds 15–16 per cent of GDP that it can be said that investment provides for additional productive capacity. As can be seen from Figure 2.2, the investment rate in the US and the Euro area after the 2008 Financial Crisis was perilously close to this depreciation rate.

As in the case of declining growth trends (Figure 2.1), China has been a very significant outlier to this pattern of global slowdown in investment. Not only has the share of investment in its GDP been on a rising trend since 1970, but the size of this share is significantly higher than that for the major global economies and for the world economy as a whole. Compare China and the USA, for example. The investment-share in the US fell from its high point of 24 per cent between 1978 and 1980 to less than 20 per cent after 2010. In China, this share was more than 40 per cent throughout the 1990s and after the millennium, and reached 46 per cent in 2013. That means that China was devoting almost half of its total annual production to new capital investment.