For the better part of the past decade, globally, economic growth and challenges were more or less in sync. All countries, by and large, benefited from globalisation, in terms of relative free flow of trade, capital and technological innovation, which drove down prices for goods and services. Inflation was modest or in decline, liquidity was more than ample — thanks to extreme monetary policies by major central banks — and interest rates were in a multi-year broad downtrend.
Aside from the effects of globalisation, we discussed some of the other key factors behind falling inflation last week. Capital investments were in decline across the developed world, due in part to excess capacity and less capital-intensive requirements for tech investments. The trends of slowing population growth and ageing population were observed across both developed and developing countries, including China. Rapid technological advancements and rising income-wealth inequality are also disinflationary.
Even the impact from, and initial responses to, the Covid-19 pandemic were largely similar around the world, in terms of restrictive movements, work from home, fiscal and monetary policies — the socialisation of private debts, near-zero interest rates and QE (quantitative easing) — as well as vaccine rollouts.