Raising world economy’s speed limit poses fresh policy challenge

Date posted: Thursday 17 April 2014

Economists estimate the financial crisis and subsequent world recession knocked the potential growth rate of rich countries down to about 1.5% from 2%. Such a decline in the speed limit of the growth rate at which inflation ignites is troubling because it risks pressuring central banks to raise interest rates sooner than they might otherwise want. The weaker potential also hurts the ability of businesses to boost profits, workers to win pay increases and governments to cut debts. The debate marks a pivot after six years of worrying over how to spur demand to considering how to increase the supply side of economies so they can handle faster expansion. The IMF predicts advanced nations will grow faster than 2% this year for the first time since 2010.

(Live Mint)

 

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