It also means that there remains some space for expanding consumer credit to boost demand.

Today s problems are compounded by a lack of sufficient private demand particularly household consumption in the advanced economies to compensate for demand losses stemming from austerity.

For domestic demand to act as an engine of growth, policies should shift resources from investment to consumption.

The right target for generating growth is domestic aggregate demand based on the right mix of consumption and high return investment.

1999 2000 2001 2000 2001 2001 2001 2001 2000 2001 2001 2001 2001 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Real gross domestic product of which Domestic demand Private consumption Government consumption Gross fixed capital formation Changes in inventories 3 ) , 4 ) Net exports 3 ) Exports 5 ) Imports 5 ) Real gross value added of which Industry excl .

Instead, the release of pent up consumer demand was literally half that of previous business cycles.

Post crisis sluggishness in US aggregate demand especially consumer demand is likely to persist, denying Chinese exporters the support they need from their largest foreign market.

But, in order to boost demand, China will also need increased household consumption and improved delivery of higher value services.

Household consumption accounts for more than two thirds of aggregate demand, and consumption growth depends on income growth for the bottom 90 .

While the impact of the global slowdown on external demand was sizeable , domestic demand and particularly private consumption remained sustained in the majority of countries .

China has the potential to maintain robust growth by relying on domestic demand and not only household consumption.

The hard part of fully realizing potential growth is shifting the composition of domestic demand from consumption to investment without adding leverage.

In addition , it was envisaged that the continued decline in consumer price inflation would positively affect real disposable income and thereby support domestic demand .

The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth.

In recent months, Mexican exports have been slowing, while domestic consumption is picking up as a source of demand.

Without a concerted effort to increase households share of total income and raise consumption s share of aggregate demand, growth of consumer products and services on the supply side will remain inadequate.

seasonally adjusted ) Annual rates 1 ) 2001 Real gross domestic product 1.6 of which Domestic demand 1.0 Private consumption 1.7 Government consumption 2.5 Gross fixed capital formation 0.3 Changes in inventories 3 ) , 4 ) 0.5 Net exports 3 ) 0.7 Exports 5 ) 3.4 Imports 5 ) 1.7 Real gross value added of which Industry excl .

Private consumption growth is also expected to be subdued in the period ahead , but much less so than growth in other demand components .

The strengthening of domestic demand and , in particular , consumption may point to the recovery in economic activity in the euro area regaining some momentum .

Over most of the postwar period, this post recession release of pent up consumer demand has been a powerful source of support for economic recovery.

Easier credit conditions and lower interest rates are supposed to boost growth by stimulating investment and consumption demand.

A retrenchment of public consumption actually subtracted more demand in the US (0.8 percentage points) than in the European Union (0.1 points).

But emerging economy growth is now slowing considerably, including in China, where demand is shifting from investment toward consumption.

Subdued domestic demand was caused by a significant retrenchment of capital spending , only partially offset by moderate growth in private consumption .

One of the first concepts to which an economics student is exposed in a basic macro course is pent up consumer demand.

Lower public spending reduces aggregate demand, while declining transfers and higher taxes reduce disposable income and thus private consumption.

As more of China s population converges to Western standards of consumption, demand for commodities and thus their prices will remain on an upward trajectory.

But the opposite of the excessive consumption model excessive reliance on investment to generate aggregate demand is also a self limiting growth pattern.

To appreciate fully the unique character of this consumer demand shortfall, trends over the past 21 quarters need to be broken down into two distinct sub periods.

Consumption growth remained buoyant and investment demand , sustained by high oil prices , decelerated but remained in positive territory .

That is by far the most protracted period of weakness in real US consumer demand since the end of World War II and a massive slowdown from the pre crisis pace of 3.6 annual real consumption growth from 1996 to 2007.

By boosting asset prices, QE is meant to spur investment and consumption. But its effectiveness in stimulating domestic demand remains uncertain.

The third point is more diagnostic The shockingly anemic pattern of post crisis US consumer demand has resulted from a deep Japan like balance sheet recession.

The gradual easing of the sanctions is expected to benefit Turkey s export industries, which hope to satisfy pent up Iranian demand for consumer and investment goods.

Unemployment, and fear that it will spread, drives down wages, incomes, and consumption and thus total demand.

Demand reduction

Service of process

With a continued need for fiscal consolidation , the impact of government consumption and investment on domestic demand is likely to remain limited .

Second , the deterioration in the external environment , which stemmed mainly from the slowdown in the United States at the end of 2000 , curtailed growth in euro area exports and increased the uncertainty surrounding investment and , to a lesser extent , consumption decisions .

Given the limited capacity of investment demand to drive growth, high value government services and increased household consumption are also needed.

at consumer level.

If the consumption share of GDP nonetheless declines, simple arithmetic tells us that investment and exports need to be higher to maintain total demand.

China s import demand is slowing in line with its economic structure s shift away from industry and toward services and household consumption.

The worst consumer recession in modern history, featuring a record collapse in durable goods expenditures in 2008 2009, should have triggered an outsize surge of pent up demand.

But, as China s per capita income increases, its consumer market matures, and its industrial structure is transformed, demand for capital equipment and commercial services will increase considerably.