Clouds on the Horizon of the Global Economy: The Importance of Taking a Long View

From a macro-financial perspective, clouds are gathering on the horizon of the global economy due to the convergence of two powerful forces. On the one hand, a financial cycle has lost momentum while the regulatory cycle is pushing to weaken the financial system, raising the risk of financial instability. On the other hand, an inexorable deterioration in public finances is undermining their sustainability and represents the biggest medium- and long-term risk to monetary, financial and macroeconomic stability. In the background, political and geopolitical developments exacerbate these challenges. Finding adequate solutions requires adopting a long-term view, regaining safety margins and abandoning the “growth illusion” – the view that protracted expansionary monetary and fiscal policy can raise sustainable growth.