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Pasaulio ekonomikos apžvalga „Nordic Outlook“ (anglų kalba)

23.01.2024 - 08:57

Eagerly awaited interest rate cuts in a turbulent world

After several truly challenging years, the world economy is moving towards greater stability. Inflation is falling on a broad front, opening the way for lower interest rates, better household finances, lower costs for businesses, more stable consumption and, in some places, opportunities for a more active fiscal policy.

Several major concerns of recent years have faded to varying degrees. Although energy prices continue to fluctuate, not least in Sweden (which has had a cold winter so far), the price situation has greatly stabilised. We do not expect the extreme price peaks of 2022 to return. The stress in global value chains we saw in 2021 and 2022 is also largely gone. If we add that a soft landing for the US economy ‒ both rare and eagerly awaited ‒ seems within reach, we almost understand why Federal Reserve policymaker Christopher Waller declared in a recent speech that “For a macro-economist, this is almost as good as it gets.”

Of course, not everything is fine and dandy just because a degree of stabilisation is finally discernible. On the contrary, the world economy remains fragile. Even if the US avoids a recession, growth is anaemic in many places and risks are numerous. Given how surprised most people were by the strength of the upward phase of inflation, we cannot be sure what its downward phase will be like. If the inflation downturn encounters a setback, it will become harder for central banks to cut their key rates and we may quickly find ourselves in a completely different scenario for growth, interest rates and financial markets. Nor do we know with certainty to what extent the monetary policy tightening already implemented has had an impact, and what may remain.

This January 2024 issue of Nordic Outlook includes in-depth theme articles that address the following issues: