Global Economics

Global Economics Focus

Global Economics Focus

Is stagflation-lite the start of something more serious?

With supply shortages set to persist for the next 6 to 12 months, the current period of “stagflation-lite” will persist a while longer. But it is likely to remain a pale imitation of the 1970s stagflation episode. Meanwhile, we do not share the pessimism of those who think that the current supply shortages are just one of a series of stagflationary shocks likely to hit the economy in the coming years.

7 October 2021

Global Economics Focus

An anatomy of supply shortages

Current supply shortages have been driven by several forces which look set to persist for six to twelve months. They have caused sharp increases in some prices (most notably energy and used cars) and also limited output. Central banks are unlikely to respond to specific shortages and should only tighten policy if aggregate demand exceeds aggregate supply on a sustained basis. Since this seems unlikely in most economies, we still expect the pace of tapering and then tightening to be very gradual.

6 October 2021

Global Economics Focus

The CBDCs are coming

We expect some major central banks to issue digital currencies later this decade, with those in countries where cash is rarest proceeding the fastest. The first generation of central bank digital currencies will be purposely designed not to shake up the status quo. But once established they would offer powerful new policy tools. It would be naïve to think that sooner or later central banks won’t consider using them.

6 July 2021
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Global Economics Focus

Great Inflation 2.0? Lessons from the 1970s

Policy stimulus and tolerance of inflation by central banks may lead to higher inflation in some G7 countries in the coming years. Given the parallels with the run-up to the high-inflation era of the 1970s, it is natural to be worried about history repeating itself. While we accept that medium-term inflation risks are probably skewed to the upside, the lessons from history suggest that the chances of a Great Inflation 2.0 are low.

29 April 2021

Global Economics Focus

Challenges of big central bank balance sheets are manageable

One legacy of the pandemic is a huge expansion in central banks’ balance sheets. Fears that this will automatically boost inflation are overdone. So, too, are worries that central banks will provoke a destabilising rise in bond yields by selling their government bonds. So central banks don’t need to resort to writing off the government bonds they hold, something which is no magic bullet in any case.

Global Economics Focus

The unusual resilience of trade and what lies in store

The relative resilience of real global merchandise trade during the pandemic has reflected several factors, most importantly robust goods spending in advanced economies. Merchandise trade flows are likely to flatten off next year as the removal of restrictions allows spending to shift back to services. But increased spending on services, including tourism, should see overall trade continue to grow.

23 December 2020

Global Economics Focus

A new era of financial repression

Financial repression – defined in the current context as measures that artificially lower the cost of government borrowing – will become an increasingly used tool to cope with higher public sector debt burdens post COVID-19. After all, it is more politically palatable than many of the alternative ways of managing debt, such as austerity. But it will further squeeze returns for savers and could also promote financial excess and hamper the long-term efficiency of economies.

10 November 2020

Global Economics Focus

The role of the state in the post-pandemic world

The state has taken on a much greater role in G7 countries during the pandemic and there is no guarantee that it will relinquish all its new powers when the coronavirus threat fades. The pandemic could accelerate the backlash against capitalism that had begun in many advanced countries in response to the increase in income inequality, with the government playing a bigger role in the economy. In addition, the unprecedented support provided by monetary and fiscal policymakers could make it harder to say no in the future during even run-of-the-mill downturns, eventually prompting a return to higher inflation, which would be exacerbated if governments also sought to control production of strategic goods. This Focus forms part of a series exploring how the coronavirus pandemic will change the global economy. You can find other publications in this series here.

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