Infrastructure investment gap and hidden inflation

Christopher Dembik
Head of Macroeconomic Research

Summary:  We will have much higher growth resulting from pent-up demand once most of the restrictions and the lockdowns have been materially lifted - Q1 outlook 2021

Our first assumption for this year is that we will have much higher growth resulting from pent-up demand once most of the restrictions and the lockdowns have been materially lifted, probably as soon as this spring in the United Kingdom and Israel, and from a vaccine rollout that is faster than expected. Our second assumption is that inflation will show up this year, and will come from the physical lack of logistics after years of underinvestment. 

Covid-19 as a trend accelerator

In many ways, the pandemic has been a trend accelerator, in particular with regard to digitalisation. It has transformed consumer spending habits for good, with consumers swapping the checkout queue for online shopping more than ever before, resulting in a greater share of e-commerce in total sales. Just for the United States, the share of e-commerce has jumped from 11.8% of total sales in Q1 2020 to 16.1% in Q3 2020. In the midst of the pandemic, only digital companies or those able to levy digitalisation were able to protect or, in some cases, even increase their revenue stream; others meanwhile, typically the store next door, were confronted with massive revenue loss due to the introduction of social distancing measures. To get around problems raised by the pandemic, there has been a lot more focus on and investment in online advertising, online systems and delivery from the corporate side, notably in sectors that were lagging behind. All of this is unlikely to change when stores reopen their doors again. The acceleration in digitalisation and online shopping will continue in the coming years, bringing out issues that had until now been overlooked.

One of the key issues that we identify is the lack of investment in infrastructure and logistics devoted to the digital world. While we may believe the digital world could exist by itself, this is a wrong assumption; the digital world does not exist independently from the physical world. It needs all the infrastructure and logistics from the physical world to keep growing and working properly. And if we accept that digitalisation will drive everything and online platforms will become dominant, we need to understand that we have reached the point where the lack of investment in infrastructure to source and build, and in logistics to deliver the products that these successful platforms sell, is becoming a serious constraint that is about to drive cost inflation higher.

Physical constraints driving inflation higher

This is already happening. The physical structure is unable to cope with a sudden and massive increase in demand. With consumers being locked down in their home countries with a massive amount of cash, they have gone on a spending spree for Asian-produced consumer goods. The shipping infrastructure does not have the capacity to handle such a sudden jump in demand, leading to a bottleneck situation where empty containers are stuck in the wrong location and freight costs increase for major shipping routes. We are currently in the unique situation of the highest-ever freight cost rates between China and Europe, and between China and the United States. This is a sign of global trade revival, but it’s also the sign of underinvestment and malinvestment in logistics, which is nothing new. 

Physical constraints are likely to be a main driver behind higher inflation in the months and quarters to come, but this risk has not been captured by capital markets and traditional models such as the 5-Year, 5-Year Forward Inflation Expectation Rate, because we don’t have price discovery anymore. Capital markets do not reflect the real structure of the economy and are not influenced by free market forces anymore. Capital markets have entered a system of administered prices, either due to government impact through regulation or due to direct impact from ultra-accommodative monetary policy. This explains why inflation expectations are still way below the central bank’s 2% threshold, but it does not mean that there is no inflation in the real world.

Looking ahead

In the years following the financial crisis, public investment was the major victim of fiscal consolidation efforts, especially in Europe. Policymakers will probably not repeat the mistake of reducing investment after Covid-19. It is a consensus forecast that we will have an explosion in demand for infrastructure spending in 2021 and in the years to come. In the United States, the Biden administration is expected to slide a massive infrastructure plan later this spring worth a few trillion dollars, as part of his “Build Back Better” program, and many more countries in the developed and emerging world are considering a similar move. While investment in infrastructure has been part of the government toolkit to relaunch the economy since J. M. Keynes, a new approach might be adopted this time, with a stronger focus on the delivery of new-related infrastructure technologies such as electric hybrid transportation refrigeration units in the cold chain industry, or the integration of automation technologies into existing more ‘conventional’ facilities. These have the advantage of impacting all industries and making existing infrastructure smart.

According to a survey conducted a few months ago by IJGlobal and M&E Global, 63% of respondents, all of whom are actively involved in the financing and delivery of infrastructure projects, expect that the post-pandemic period will give new-related infrastructure technologies a big push. And 50.7% consider that it will be a key part of the stimulus effort to reboot economies after the pandemic. Governments will be key to filling the gap in infrastructure investment and focusing on the delivery of digital infrastructure, not only by formulating new regulation and policies but also by acting as a direct investor. The interest in the investor community is already noticeable, with equity investors focusing on infrastructures that are sustainable and resilient.

This period will create remarkable new opportunities, specifically in the logistics space that is traditionally characterised by very low margins. We already see opportunities in health care logistics with the arrival of the vaccines, where entrepreneurs and investors are focusing on more specialised delivery and much higher-margin areas, such as cold supply chain. 


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.