A tale of three journeys
The global economy has reached a critical and perilous juncture. Policymakers are facing a unique constellation of challenges. Each of them, taken in isolation, is not new; but their combination on a global scale is. On the one hand, central banks have been tightening to bring inflation back under control: prices are rising far too fast. On the other hand, financial vulnerabilities are widespread: debt levels – private and public – are historically high; asset prices, especially those of real estate, are elevated; and risk-taking in financial markets was rife during the phase in which interest rates stayed historically low for unusually long. Indeed, financial stress has already emerged. Each of the two challenges, by itself, would be difficult to tackle; their combination is daunting.
This year's Annual Economic Report explores the global economy's journey and the policy challenges involved. It is, in fact, an exploration of not one but three interwoven journeys: the journey that has taken the global economy to the current juncture; the journey that may lie ahead; and, in the background, the journey that the financial system could make as digitalisation opens up new vistas. Much is at stake. Policymakers will need to work in concert, drawing the right lessons from the past to chart a new path for the future. Along the way, the perennial but elusive search for consistency between fiscal and monetary policy will again take centre stage. Prudential policy will continue to play an essential supporting role. And structural policies will be critical.
What follows considers, in turn, each of the three journeys.
Navigating the disinflation journey
Although inflation has come down, challenges for the global economy remain and require a holistic policy response, says Agustín Carstens, presenting the BIS Annual Economic Report.
The views expressed here do not necessarily reflect the views of the BIS member central banks.