Demand remains too weak for current levels of production. We also continue to watch energy prices and especially the USD for further clues about increasing inflationary pressures. Later this year, tax cuts will have a positive impact on consumer spending. However, we continue to expect the savings rate to continue to drift up slightly over the coming months. So, we're sticking to our call for consumption growth to rise at slightly below real income growth for the foreseeable future.
Stronger growth has to come from investment.
We continue to highlight the fact that stronger growth has to come through an acceleration in investment spending. With corporate cash flows flat from last year, a new investment boom is hard to imagine as comparisons with long-term averages suggest that investment is still too high in relation to current levels of cash flow. Our analysis, however, implies that it might be midnight rather than five o'clock in the morning, and that a decisive turnaround in economic activity and corporate profitability is further away than the consensus currently expects. So, we should take caution in becoming overly pessimistic, despite the recent stream of weak economic data. This report is prepared by CSAM for educational and informational purposes and does not relate to any particular Credit Suisse Warburg Pincus Fund.