The IMF-World Bank meetings took place earlier this month in Washington DC. It is the annual jamboree for central bankers, finance ministry officials and senior economists from around the world.

As usual, the official statements paid homage to inclusive growth and the need for global coordination. However, a careful reading of discussions and statements suggests a subtle shift in how economists and policymakers hope to break out of the ‘new mediocre’ of tepid growth and deflation. In turn, this provides a clue to how the world economy may evolve over the next few years.

The IMF estimates that the world economy grew by 3.1% in 2016 and that it will accelerate to 3.4% next year. This is not an especially poor performance by historical standards. But there seems to be an almost unanimous view that the risks are all skewed to the downside. Many factors are cited: Brexit, China’s internal adjustment away from investment-driven growth, the gridlocked European economy and so on. None of this is new.

What’s more interesting is the growing tolerance of economists and policymakers for economic strategies that would have been condemned till afew years ago as unsustainable. The IMF’s latest World Economic Outlook, for instance, gently suggests that governments should explore fiscal options “even when fiscal space is limited”. The advice is couched in careful words, but the message is unmistakable.

This is interesting given that many governments, especially those of advanced countries, are already heavily indebted (even without counting pensions promised to a rapidly ageing population). Moreover, the IMF advises governments to pursue fiscal policies that “support near-term growth and future productive capacity”. This is economist-speak aimed at encouraging public investment in infrastructure.

It is interesting that this is being recommended when the abysmal condition of physical infrastructure in the US has been brought up repeatedly in the presidential campaign. The Trump camp may have been more vocal about this, but several Clintonleaning economists have also been arguing for greater investment in roads, bridges, airports and so on. Infra is the New Structure The growing clamour for infrastructure investment in not surprising. Who would have thought at the turn of the century that Delhi and Mumbai would soon enjoy better airports than New York?

What is interesting is that politicians and economists seem to agree on this one thing. So, what are the implications of US infrastructure spending for the world economy?

The most obvious first-round impact of higher infrastructure spending will be stronger domestic demand. GDP growth has dropped to 1.6% this year from 2.6% in 2015, and one may feel that an investment splurge is just what is needed.

However, note that unemployment is down to 4.9% from a peak of 9.6% in 2010. The IMF similarly estimates that the country’s output gap, which peaked at –4.7% in 2009, has now effectively closed. In other words, the US will be attempting to accelerate an economy that is running close to full capacity. Matters would be exacerbated if tough immigration curbs are also introduced.

The second constraint is that a significant portion of the investment will have to be publicly sponsored even if the private sector is roped in. Government debt has gone up over the last 15 years from 55% of GDP to 108%, and continues to creep up. A public investment binge will make the US even more indebted.

Third, the US savings rate is now back to the pre-crisis level of 18% of GDP while investment rate is around 20%. History suggests that the savings rate will not rise much further, so an increase in the investment rate would directly feed the country’s current account deficit.

In other words, we would return to global imbalances with the US running a large deficit and China, which is allowing the renminbi (CNY, Chinese yuan) to drift weaker, running a large surplus.

Putting all this together, the next two years could see a debt-fuelled investment boom in the US, which generates domestic demand at a time that the economy is close to full employment. In turn, this would feed a trade deficit and inflation for nontradables (although prices of tradables may still be held down by China).

Stock Up for the Dry Days The Fed may respond with higher rates but it will likely remain behind the curve. Meanwhile, the world would enjoy a period of better growth but return to large global imbalances too. Pessimists would argue that increased indebtedness and international imbalances would render such a cycle unsustainable. This is certainly true.

But the fact is that the world has never grown in a state of equilibrium. Every period of growth in history has been driven by large imbalances and distortions that ultimately undermined the phase. This time, the stresses in the system are already visible before the cycle takes off. Investors and businesses should strap in for the ride and remember to make provisions for the bust.