$35 trillion in infrastructure spending in next two decades: CIBC

Governments worldwide will spend as much as $1.5 trillion annually for the next 20 years to make up for a lack of such spending in the previous decades, according to a new study by CIBC World Markets.

Countries will spend approximately $30 trillion over the next two decades on new roads and similar projects and to fix existing infrastructure, said CIBC economist Benjamin Tal, who authored the study.

Governments now view this kind of spending as a way to boost employment.

In reality, however, many countries balanced their budgets during the past 10 years or so by skimping on the construction for new public assets and the maintenance of existing buildings and roads, Tal said.

Projected annual infrastructure spendingRegionAmount (billions)North America $180 Europe $305 Asia $400Africa $10 Source: CIBC

"The global economy is running a major infrastructure deficit as the cost of decades of under-investment is now surfacing," he said.

Canada, for example, eliminated its huge budget deficit dating from the 1980s but, in the process, also built up an infrastructure deficit of $120 billion.

Similarly, the United States will spend $150 billion annually for the next 10 years while Europe will look to invest about $300 billion a year in roads, bridges and power plants among other public assets, Tal said.

Even China will be spending $200 billion on infrastructure annually.

Interestingly, it is not the need for the latest information technology or transportation assets that is driving the majority of the spending, Tal said.

Instead, the lack of upkeep of the existing bits and pieces has cut their lifespan, making it doubly imperative that the government start maintaining these public assets more frequently.

Tal estimated that spending half a percentage point less than necessary on maintaining infrastructure cuts the effective life of these assets by a decade and will add $20 billion to Canada's spending within 10 years.

Thus, governments are recognizing that spending a little bit each year can put off the day when they have to spend a lot to replace the infrastructure, Tal said.