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Frictions in the world economy, Covid-19 and a shift in thinking about monetary and fiscal policy augur a new era of greater volatility, according to economists at Societe Generale.
The French bank expects more bottlenecks and spikes in demand for certain skills because of a synchronized acceleration of the transitions to a digital and low carbon economy, accompanied by changes in lifestyles after the pandemic. At the same time, major central banks are modifying strategies to tolerate inflation overshooting, and governments are embracing fiscal stimulus while worrying less about high debt.
“All these movements are happening together, at the same time, on a global level -- for us, that in itself is a source of friction,” Societe Generale Chief Economist Michala Marcussen said.
Shorter economic cycles would mark a fundamental shift for the world after half a century of longer periods of change with lower and lower inflation and interest rates. That prospect is already sparking debate over how lasting recent price spikes will be, and making it harder for central banks and governments to find a path out of expansionary monetary and fiscal policies.
Marcussen said that while the extent of the change is still an “open question,” Societe Generale is increasingly trying to recognize the new situation in its models.
“Uncertainty, which isn’t all negative, risks creating shorter and more volatile cycles,” Marcussen said. “We are at a crossroads.”
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