2017 Global Economic Outlook: Broad Policy Trends and Low Growth

SECTION II 2017 Global Economic Outlook: Winds of Change FOR MOST OF THE LAST EIGHT YEARS, GLOBAL POLICY MAKERS have been buffeted by the gale force headwinds generated by the financial crisis. In response, central banks around the world have expanded their balance sheets by a staggering $12.5 trillion,”” while fiscal austerity measures in the G-7 economies have reduced the general government budget deficit from 10% of GDP to just 3.6% today. Although this mix of policies may have helped avoid a second Great Depression, it has fallen short of fostering a robust economic recovery. According to the IME, the nominal GDP of advanced economies has grown at just a 1.6% annualized pace in US dollar terms since its 2009 trough, making it among the slowest expansions on record. The overt reliance on monetary policy has also had unintended consequences. Persistently low interest rates have crippled bank profitability and penalized savers. Moreover, the boost that low rates provide to stock prices primarily benefited a narrow segment of the income distribution, exacerbating inequality concerns. Not surprisingly, populism has been on the rise globally. 36 | Goldman Sachs | JANUARY 2017 HOUSE_OVERSIGHT_014569