The great reindustrialisation

Over the past few decades, the manufacturing shares of GDP across advanced economies have reduced markedly. Manufacturing activity has relocated to China and elsewhere, leading to a rotation in the shares of world manufacturing. China has become the world’s largest manufacturer, and by a substantial margin.

Relatedly, gross (and net) investment shares of GDP have reduced across advanced economies over the past few decades – and reduced further since the global financial crisis despite low/negative interest rates.  From infrastructure to business capex, private and public sector investment has been muted across advanced economies – with some capital intensive activity migrating to economies like China. 

These weakening levels of investment are an important reason for weak productivity performance across advanced economies over the past few decades; coinciding with sector shifts into lower productivity services activity.  Lower levels of capital intensity have dragged on advanced economy productivity.

The capex boom

But looking forward, a surge in investment across advanced economies is gathering strength – ‘the great reindustrialisation’.  This advanced economy reindustrialisation process will run in parallel with ongoing heavy investment in China and elsewhere. This capex boom will have first-order implications across the global economy. 

This reindustrialisation process will be driven by significant capital investment in areas such as the net zero transition and disruptive technologies like AI, reinforced by the strategic imperatives associated with geopolitical rivalry: wartime economies tend to be capital intensive.

The full note is available at: https://davidskilling.substack.com/p/the-great-reindustrialisation