Why is the global economy so oblivious to the new world disorder? High interest rates have managed to bring down inflation from a peak of more than 10% across the rich world to about 6%. This not only raises households’ purchasing power; it also raises their spirits. Indeed, having hit an all-time low in 2022, rich-world consumer confidence has risen sharply. Higher borrowing costs have been muted by the fact that a lot of household and corporate debt is on fixed interest rates.
There is also a more intriguing possibility: after so many shocking global developments, the world no longer minds chaos as much as it once did. This is consistent with academic evidence, including a recent paper by two researchers at the Federal Reserve, which suggests that the hit to output from a spike in economic uncertainty fades after a few months.
Good economists remain vigilant. Higher interest rates may have a delayed impact on growth. Escalation in the Russia-Ukraine war or the Red Sea could provoke another round of shocks to energy supply, feeding into inflation. All bets are off if Xi Jinping decides to move on Taiwan. Yet on the flipside, falling inflation and a potential boost to productivity from generative artificial intelligence could prompt gdp to accelerate. Moreover, the global economy has already demonstrated its resilience. Polycrisis, what polycrisis?
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Why is the global economy so oblivious to the new world disorder? https://t.co/EWpg2dGdg4 ⬇️
— The Economist (@TheEconomist) February 13, 2024