Global | Overheating risk is real, but probably overstated
Could fiscal stimulus lead to economic overheating? Our assessment suggests that while that’s a risk, it’s not a foregone conclusion, even with large fiscal packages. There are also arguments for erring on the side of more stimulus rather than less, with policy options to rein in demand quickly if inflationary pressures start to pick up.
What you will learn:
- Multipliers are also likely to be low for other stimulus
categories too, including aid to businesses (well below 1
according to the Congressional Budget Office).
- An important component of the argument for overheating is the existence of a large overhang of “excess” savings built up in 2020 due to coronavirus restrictions.
- A key determinant of whether a fiscal package risks overheating an economy is, in theory, the size of the output gap (the difference between actual output and its potential level).
Inflation – not past the peak and easing will be gradual for France
France has dodged soaring price pressures better than its eurozone peers, but we think its inflation will fall more slowly.Find Out More
Answering the questions in our US forecasters’ inbox
In this new quarterly Research Briefing series, we answer the top five questions we've recently received from clients.Find Out More