Can governments shoulder a higher debt burden?

The coronavirus will leave in its wake a sharp rise in public sector debt. Low interest rates suggest that many governments will be able to live with this, rather than having to resort to austerity, default or inflating the debt away. But they would still be wise to reassure financial markets that they will return debt to a sustainable path. And there are some countries where the debt dynamics are less favourable. They will have to reduce debt in one of the other potentially more painful ways.
Vicky Redwood Senior Economic Adviser
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Global Economics Chart Book

Recoveries regaining pace after slow start to the year

Global GDP growth slowed sharply in Q1 as most parts of the world grappled with renewed waves of coronavirus. The US and Korea were among the few exceptions where recoveries accelerated. But with global infection numbers now falling, activity seems to be gaining momentum again. The Global Composite PMI rose to its highest level since April 2006 in May. What’s more, our high frequency COVID Mobility Trackers suggest that activity has risen sharply, particularly in Europe, as restrictions have eased. Other than in particular sectors such as motor vehicle production, there is little evidence so far that recent supply shortages are holding back output. But there are growing signs of inflationary pressure around the world, most notably in the US. Fears of higher inflation should prompt numerous central banks in emerging economies – especially in Central & Eastern Europe – to shift towards tighter monetary policy in the coming quarters. But central banks in major DMs will look through higher inflation this year and next.

11 June 2021

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How concerning is the recent rise in inflation?

A rise in inflation was always likely to happen this year as economies re-opened and energy prices recovered from last year’s sharp falls. But in the US in particular, the increase since the start of the year has exceeded even our relatively strong expectations. While this might primarily reflect transitory factors, we continue to think that the risk of a sustained rise in inflation is bigger in the US than in other developed economies.

10 June 2021

Global Economics Update

G7 tax deal encouraging sign for cooperation among DMs

The direct implications of this weekend’s deal on global corporate taxation struck by G7 finance ministers will be limited. But the deal suggests that wealthy nations have found renewed determination under a Biden presidency to cooperate on global issues, which may pay dividends in other areas in years to come.

7 June 2021

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Long Run Focus

Will we start working less?

The downward trend in average working hours in advanced economies has slowed or stalled in the past few decades. Yet there are reasons to think that the decline will resume, at least in some sectors and some countries. Other things equal, fewer hours worked would dent GDP. However, a reduction in working hours could boost participation and/or make workers more productive. As for the impact on the composition of economies, a rise in leisure time could give a boost to recreational sectors.

13 May 2021

Long Run Update

Will demographic changes boost inflationary pressures?

The rapid growth of the global labour supply in the past few decades looks set to give way to a period of much weaker growth. Some argue that this will reverse the decline in inflation seen in recent years as the bargaining power of labour rises and an ageing population boosts the number of consumers relative to producers. But there is a lot of uncertainty about how demographic changes affect inflation. Even if the net impact is to push inflation up moderately, other factors such as the attitudes of policymakers towards inflation are likely to play a far bigger role in determining whether we see higher inflation in the long run.

24 March 2021

Long Run Update

The outlook for deglobalisation

We argued some time ago that globalisation had peaked and a period of deglobalisation might even lie ahead. It is now becoming clearer what to expect – namely a type of regionalism driven by the emergence of separate US-led and China-led spheres. While this decoupling began with trade, it will increasingly spread into technology, market access and financial ties. This will put a modest dent in productivity growth at a global level, but China stands to come off worse than the West given its inefficient state-led model.

16 March 2021
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