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The Return of Fiscal Policy

With interest rates at record lows and global growth set to continue decelerating, there has rarely been a better time for governments to invest in infrastructure and other sources of long-term productivity growth. The only question is whether policymakers in Germany and elsewhere will seize the opportunity now staring them in the face.

LONDON – As we enter the last quarter of 2019 (and of the decade), cyclical indicators point to a slowing world economy amid wide-ranging structural challenges. There are plenty of issues to keep one up at night, be it climate change, antimicrobial resistance (AMR), societal aging, strained pension and health systems, massive debt levels, and an ongoing trade war.

But as the old adage goes, one should never let a crisis go to waste. Among the countries feeling the worst effects of the global trade tensions is Germany, where policymakers finally are waking up to the glaringly obvious need for productivity-enhancing, investment-based fiscal stimulus. Similarly, beneath all the chaos caused by Brexit, the United Kingdom is also looking at its fiscal-stimulus options. So, too, is China, as it searches for measures to reduce its vulnerability to disrupted trade and supply chains.

Policymakers around the world are coming to realize that it is neither wise nor feasible to rely constantly on central banks for economic-policy support. In today’s environment of low – and in some cases negative – interest rates, the case for shifting the burden from monetary to fiscal policy is more apparent.

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