WASHINGTON, DC – In 2016, the world’s attention was focused on major political developments in the European Union, the United States, and other countries, where voters have expressed deeply held concerns about trade, migration, and structural labor-market changes.
But, from an economic perspective, 2016 was a fairly quiet year: the global economy continued its slow recovery, with economic activity in the US, Europe, and emerging markets gradually improving, despite some remaining vulnerabilities. And even low-income economies that have struggled to adjust to falling commodity prices may receive a small boost, given recent price increases.
Remarkably, financial markets have so far taken the year’s political upheavals in stride. Indeed, the prospect of a more expansive fiscal stance in the US has raised expectations of global growth and inflation in the near future. This signals possible relief for advanced economies’ central banks, which have carried most of the economic-policy burden during the years of slow recovery since the 2008 global financial crisis.
As the International Monetary Fund has argued for some time, a resurgence of growth requires support from fiscal policy in countries that can afford it, supported by monetary policy and structural reforms aimed at lifting productivity and growth.