More Fiscal, Less Money: The Forthcoming Rebalancing of the Global Policy Mix
- By Dominique Dwor-Frecaut
- 3 min read
2020 saw unprecedented fiscal policy easing, reflecting the economic collapse caused by the policy response to the pandemic (Chart 1). With global mass immunization underway, the IMF expects a similarly unprecedented pace of fiscal consolidation in 2022. In the largest four developed bond markets, the US, Japan, the euro area (EA) and the UK, the government deficit would fall by 4.9ppt of GDP on average. These numbers appear unrealistic.
The Broken Austerity Taboo
The pandemic has catalysed many pre-existing trends, such as the move from brick and mortar to online retailing. That could also apply to policymaking: for many years, several economists argued that fiscal policy with very low rates could be much more expansionary than consensus assumed. But somehow this view failed to enter mainstream policymaking before the pandemic.
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