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What to Watch Out For in the Global Economy

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What to Watch Out For in the Global Economy

Global economic growth dipped a bit in 2016, due mainly to weaker growth in the U.S., but has picked up again this year. As a baseline forecast, we expect moderate global growth to continue for the foreseeable future, penciling in 3.6% growth this year and next, after last year's 3.1% (1).

  • We expect the global economy to grow at around three and a half percent this year and next, helped by still very supportive monetary policy in the developed world. That's the baseline, but what to look out for?
  • Watch for any signs that the Trump Administration, after a rocky start, begins to find its feet. The learning curve that every new administration goes up, recent White House personnel changes, and the political incentives ahead of the 2018 midterms offer some hope of that. Watch also for whether President Trump uses the historic opportunity he has to put his stamp on the Federal Reserve.
  • With the French and German elections over, watch for signs that political efforts to move forward on EU integration gather momentum.
  • Watch for signs that, after consolidating his leadership position at the upcoming National Party Congress, Chinese president Xi Jinping moves to accelerate reforms that are needed to sustain longer-term growth, even at the expense of lower short-term growth.
  • With the Bank of Japan (BOJ) continuing with its no-holds-barred monetary policy and the labor market continuing to tighten, watch for signs of wage pressures picking up and Japan finally reflating.


Baseline Outlook For Moderate Growth

We look for real GDP in the U.S. to be 2.1% this year and 2.3% in 2018, in line with the average growth rate since the U.S. economic recovery started in mid-2009 (2). There remains some slack in the labor market, monetary policy looks likely to remain quite accommodative, and the pro-business stance of the Trump Administration appears to be buoying animal spirits (3).

What is now very aggressive monetary policy has been supporting euro-area growth, and we expect it to continue to do so (4). We forecast real GDP growth of 2.2% this year and 1.8% in 2018, as the headwinds from Brexit uncertainty take some toll. The negative impact of the Brexit uncertainty shock on the U.K. economy so far has proved to be less than we and many observers expected, but we expect those headwinds to continue to stiffen as the clock ticks down to March 2019. We pencil in real GDP growth of 1.4% this year and 0.9% in 2018.

Japan's economic growth has picked up and surprised many on the upside recently. The BOJ is maintaining a very aggressive monetary policy stance, and the fiscal headwinds have eased, with the second round of the planned consumption tax hikes being postponed to October 2019 (from October 2014 originally and then from April 2017). We expect real GDP growth to be 1.4% this year and 1.3% in 2018.

China's growth has also surprised on the upside, as policymakers seem to have tilted the balance of policy toward attempting to keep growth strong ahead of the important National Congress of the Communist Party of China in mid-October. We expect real GDP growth of 6.8% this year, but growth next year to dip to 6.5%, just meeting the government's current growth target of "at least six and a half percent (but below 7%)," as the balance tilts more toward accelerating reforms.

India, on a purchasing power parity basis (and helped by a huge population), is now the third-largest economy in the world (albeit way behind China and the U.S.), having seemingly cracked the code of economic development. With the demonetization shock of November 2016 now having been absorbed and the Modi government reforms, including introducing a GST (Goods and Services Tax), providing some tailwinds over time, we look for real GDP growth of 7.0% this (financial) year and 7.8% next year (5).

With Brazil and Argentina finally emerging from their multiyear recessions, we forecast real GDP growth in Latin America of 1.4% this year, rising to 2.3% next year. In Australia, we expect real GDP growth to continue in the mid- to high-twos this year and next, as the economy continues to rebalance after its China-induced mining boom of recent years, and in New Zealand we expect real growth to be around 3%.

As expected, the Fed announced at its September Federal Open Market Committee meeting the start of the gradual unwind of its quantitative easing (QE)-expanded balance sheet (from October). We do not expect the Fed to raise rates again this year, but pencil in three more 25-basis-point (bps) rate hikes in 2018; we expect the European Central Bank (ECB) to begin to "taper" its monthly asset purchases in the first quarter of 2018, ending its asset purchases in early 2019 and starting to raise rates some time later in 2019; and we expect the BOJ to continue Quantitative and Qualitative Monetary Easing with Yield Curve Control for the foreseeable future.

All in all, it is a fairly benign growth and policy outlook in the base case. The shadow cast by the Global Financial Crisis and Great Recession continues to fade; output gaps in the affected economies continue to close, and labor markets are getting closer to full employment; inflation remains low and below the target of most major central banks, and incipient inflationary pressures are conspicuous by their absence, allowing developed world central banks to maintain varying degrees of very accommodative monetary policies. Key emerging market economies (notably China and India) continue on an upward path of economic development and rising living standards.

But what are some of the important things to watch out for? This is far from an exhaustive list, but let me focus on five.

Can The Trump Administration Find Its Feet?

The election of Donald Trump as President of the U.S. on Nov. 8, 2016, shocked the world. By any measure, Donald Trump, the non-politician doing the most important political job in the world, is an unlikely and unusual president. And the first eight months of the Trump presidency have been marked by drama, controversy, and division; in many quarters, there has been dismay, in others, hope has turned to disappointment. A predominant judgment has been that, candidate and President Trump's confident and often dismissive rhetoric when it comes to solving policy problems notwithstanding, the president has been quite ineffective: Such signature items as health care reform, comprehensive tax reform, and a trillion-dollar infrastructure plan all remain stalled or very slow getting out of the gates.

But it may be too simplistic to extrapolate from the first eight or nine months of the Trump Administration and write off the chances of the administration "getting anything done." Market participants and interested observers should watch out for signs that the administration is starting to find its feet, raising the possibility, at least, that noteworthy policy achievements start to come.

There are three reasons for being alert to this possibility. First, in any new administration, there is an organizational learning curve to go up, and there is plenty of reason to believe that the learning curve has been particularly steep and extended for the Trump Administration, given the lack of prior political and policy experience of the president and many of his close advisors and the unusual circumstances under which the administration came into being. Any big job entails a period of learning-by-doing, and people tend to "grow into" big jobs as they accumulate experience. There is no bigger job on earth than the president of the U.S.

Second, the recent personnel changes in the White House, head-spinning as they have been, speak to the president starting to impose some order and structure on the business of government. The departure of previous White House Chief of Staff Reince Priebus and White House Chief Strategist Steve Bannon, both of whom reported to the president, and the appointment of John Kelly, previously Secretary of Homeland Security, as the new Chief of Staff, with all White House staff reporting to him, is particularly noteworthy. Kelly, a Marine Corps four-star general with considerable Washington experience, presumably has a mandate from the person who appointed him--President Trump--to make the White House and the Administration run better.

Third, the clock is ticking to the midterm congressional elections in November 2018 (6). As was the case with the Clinton Administration in the 1994 midterms and with the Obama Administration in the 2010 midterms, it is common for a party that has gained control of the White House and both houses of Congress to lose control of one or both houses of Congress at the next election. While there appear to be serious divisions within the Republican Party and schisms between it and the White House, the political incentives for the Republican Administration and the Republican-controlled Congress to demonstrate to the electorate that they "can govern" and to get some policy runs on the board are strong.

The first litmus test of this supposition was how the president handled the looming threat of a government shutdown and the need to raise the debt ceiling in September. If there had been a government shutdown and debt ceiling "crisis," with high-blood-pressure-inducing negotiations finally leading to a resolution, it would have flown in the face of the above line of thought. As it transpired, both of these issues were diffused, for the time being at least, in a relatively drama-free way: On Sept. 6, 2017, the president surprised many by brokering a deal with the Democratic and Republican Congressional leadership to extend funding for the government to Dec. 8, 2017, and to suspend the debt ceiling until that date, which he signed into law on Sept. 8 after enabling legislation was passed by both houses of Congress. This provides a small piece of confirming evidence that there is a shift underway toward the administration settling down, auguring better for the administration to make some policy headway over coming months. (7)

What Kind Of Stamp Will President Trump Put On The Fed?

President Trump has a unique opportunity to influence the make-up and policy direction of the Federal Reserve. Janet Yellen's four-year term as chair of the Federal Reserve expires on Feb. 3, 2018, and Vice Chair Stanley Fischer, whose term was to end on June 12, 2018, announced on Sept. 6 that he would be stepping down "on or around" Oct. 13, 2017. President Trump has already filled one position, that of vice chair in charge of bank oversight, a position created by the Dodd-Frank legislative response to the financial crisis. Randall Quarles is generally regarded as a market-friendly safe pair of hands. Two out of the other four governor positions are vacant. This means that, come February next year, a little over one year into his presidency, President Trump could have nominated five out of the seven members of the Board of Governors of the Federal Reserve System, including the chair and two vice chairs (8).

Why is this important? Put simply, because the central bank is a critical institution for the banking system, for financial markets, and for the economy, and the Federal Reserve is the most important central bank in the world. By his appointments, the president has the power to heavily influence this most important of economic institutions. His choices matter, immensely.

When thinking about how President Trump's appointments could influence or reshape the Fed, broadly speaking, there are three main scenarios.

The first would largely respect the status quo. In recent decades, not just in the U.S. but across the world, the notion of the central bank being assigned the primary (if not sole) responsibility within the overall government for managing aggregate demand and inflation via monetary policy, and being given the decision-making and operational independence to do so, has become standard. The business of central banking is seen as highly "technocratic" and requiring leadership with a high degree of specialized subject matter expertise. The recent trend has been to appoint notable academics or at least PhD economists to leadership positions. President Trump could follow this convention and make appointments that are seen in the policy and financial world as "strong" and as respecting the independence of the Fed.

A second possibility would be for the president to make appointments that are seen as "politicizing" the Fed and compromising its independence and monetary policymaking integrity. The institution of an independent, technocratic central bank evolved to avoid such a situation, and to secure the benefits of sound noninflationary management of the macro economy, but institutions are only as good as the norms and practices that support them. A feature of the U.S. system of government is that the president, as the head of the executive branch, gets to appoint up to three or four thousand senior officials. These appointments are often seen as "political appointments." Appointments to the Board of Governors of the Federal Reserve are typically not seen as overtly "political" in the same way, but this could change.

A third possibility would be for the president to use the appointments to change the way the Fed operates, but in a potentially good way. The president seems to have high aspirations when it comes to increasing employment, frequently citing the large number of people of prime working age who have dropped out of the labor force--a legitimate economic as well as political concern. The Fed, on the other hand, seems to have its sights set lower, appearing to take the view that the economy is already quite close to full employment. At the very least, one would expect President Trump to appoint members of the Board of Governors whose bias is to err on the side of "running the economy hot," to see whether that "heat" leads to inflation starting to pick up or employment picking up to a surprising degree because the U3 and U6 unemployment rates drop to unprecedented levels and the labor force participation rate reverses its recent cyclical and secular decline (9).

There is an even broader frame of reference. I would argue that one of the key learnings from the financial crisis and its aftermath and from Japan's earlier deflationary experience is that the pendulum swung too far toward the independent, technocratic central bank having prime responsibility for managing the macroeconomy. It is high time to rethink the existing macroeconomic policy framework and make adjustments where it makes sense (10).

Three lessons stand out: First, both fiscal and monetary policy have a role to play in managing aggregate demand and ensuring full employment, price stability, and financial stability, and the relevant weight that should be assigned to each varies according to the economic circumstances; second, there should be more cooperation and coordination between monetary policy and fiscal policy, rather than treating that as an embarrassment or original sin; and third, not just fiscal policy but also monetary policy has redistribution impacts, and these need to be taken into account.

These three lessons all argue for the macroeconomic policy framework to be evolved in such a way that fiscal and monetary policy are seen as two complementary means for managing aggregate demand and can be coordinated in such a way as to produce the best societal outcome. Is it not incongruous and a tad disingenuous on the part of all concerned that in the popular and political arena the government is seen as being responsible for managing the economy (e.g., for "creating jobs"), and yet in policy and market circles that job is seen as resting primarily with an independent central bank? Is it not anachronistic that the chair of the Federal Reserve is not a designated member of the National Economic Council, or a suitably reconstituted body for coordinating U.S. economic policy? (11) Should consideration not be given, somewhat in the spirit of Abba Lerner's idea of "functional finance" (12), to establishing an Agency of Aggregate Demand Management, which would be "independent" and "technocratic," but would combine the demand management roles of monetary and fiscal policy, while the redistributive aspects of both fiscal and monetary policy would be the purview of the administration and Congress--"the politicians"--and would be taken as given by this agency?

It is unlikely that President Trump has this scenario in mind. But judiciously moving the Federal Reserve in this direction via the appointments the president makes might be surprisingly consistent with his aspirations to "Make America Great Again," particularly when it comes to increasing employment.

Will 2018 Be The Year When European Union Integration Gains Momentum?

There has been a compelling sense for a while now that 2017 was a critical year politically for Europe because of the French and German elections. The financial crisis and recession that it triggered exposed serious flaws in the economic and political architecture of the euro area, and by extension the European Union (EU) since the EU Treaties hold that the currency of the EU is the euro; and the refugee crisis of 2015 exposed similar flaws in the way the external border is conceived and managed with respect to freedom of movement within the EU (and Schengen area).

The lesson that was learned at the European political and policy level was that the EU was a "work-in-progress," a metaphorical half-built house, and that the foundations of that house needed to be strengthened and the rest of the house to be built. Thus, a European Stability Mechanism was established (incorporating the earlier European Financial Stability Facility); the Stability and Growth Pact was strengthened by introducing a Fiscal Compact among other things; the ECB introduced its Outright Monetary Transactions program; key pillars of a Banking Union (the Single Supervisory Mechanism and Single Resolution Mechanism) were established; and Frontex (established in June 2004 as the European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union--now there's a mouthful!) in September 2016 was beefed up to become a new European Border and Coast Guard Agency.

At the same time, high-level political discussions, centered at the European Commission and the European Council, recognized that, for the euro area to become a "genuine" economic and monetary union (June 2012 "four presidents' report") and to be "completed" (June 2015 "five presidents' report"), further moves toward fiscal, economic, and political union would be needed.

Because those moves imply that member states in effect would be pooling more sovereignty, it has long been recognized that substantive progress toward that goal could only be made after the French presidential elections (April/May) and the German federal elections (September), Germany and France needing to see eye to eye being a necessary (albeit not sufficient) condition for concrete progress to be made. There were two ways to look at this: The first was that, for the German and French leaders to be able join forces to push EU integration forward, they would need to get the elections in their own countries "out of the way"; the second was that, by putting some of these ideas in front of their electorates before the elections, they could claim something resembling a mandate.

In the event, the elections probably did turn into more of a referendum on the future of Europe than the political classes had intended, partly due to Emmanuel Macron making it so and partly due to the European Commission releasing on March 1, 2017, a White Paper on the Future of Europe, penned by the President of the Commission, Jean-Claude Juncker. While not exactly a page-turning best-seller, this document laid out five scenarios--or political choices--for how the EU might be evolved by 2025 (13).

Around the time of the German elections, two noteworthy developments occurred. First, on Sept. 13, President Juncker delivered his third annual State of the Union address to the European Parliament, urging that now is the time to draw first conclusions from the future of Europe debate and move "from reflection to action," "from debate to decision," and laying out a timeline for doing so, leading up to the European Parliament elections in May 2019. Second, just after the German election, French President Macron made his much-anticipated speech laying out his vision for the future of Europe, seen as forming the basis of the position on which France would seek German agreement.

Meanwhile, the clock is ticking, toward March 30, 2019, on the Brexit negotiations. Viewed narrowly, Brexit is all about what kind of relationship the U.K. and the EU-27 will be able to forge as the U.K. repatriates much or some of the sovereignty that it ceded to the EU as a member state. However, Brexit can be viewed as part of a much broader process of the 28 member states of the EU--more accurately, through the political process, their citizens--trying to figure out, collectively, how much sovereignty they want to pool and how. Brexit is as much about the future of the EU-27 as it is about that of the U.K.

If the EU-27 cannot figure out how to fortify and finish building their collective house, while agreeing with the U.K. where their dwelling fits into the layout of the property, the risk is that the half-built house eventually becomes derelict. 2018 is shaping up to be a defining year for the EU. The technocrats have done their work--the ball is now firmly in the politicians' hands, which means the people's.

Will President Xi Jinping Accelerate Reforms After The Party Congress?

There is a similar theme with respect to China, albeit in a very different context. The National Congress of the Communist Party of China is held every five years and is closely watched because of the leadership changes, notably the makeup of the (currently) seven-member Politburo Standing Committee, that are rubber stamped at the Congress. The 19th Party Congress, which opens in Beijing on Oct. 18, marks the end of President Xi Jinping's first five-year term.

A view widely held among market participants and China watchers is that, in his first term, Xi Jinping has focused on consolidating his power, prioritizing economic growth over structural reforms, but that, once secure in his second term, he would start to accelerate reforms, including tackling head-on some of the legacy debt overhang, which many see as a slowly ticking time bomb. In this view, President Xi first focused on fortifying his base in the Party, and the Party itself, via his anti-corruption campaign, and, while laying out a vision for reforming the economy and for allowing market forces "to play a decisive role" (November 2013 Third Plenum Decision), he took only piece-meal and insufficient steps in that direction; his second term would breathe life into the reform process.

The International Monetary Fund (IMF)'s Article IV Consultation reports published in July of this year make for interesting reading in this regard. The IMF makes no bones about the fact that it thinks China should focus on accelerating the necessary reforms and take action to curb the growth of credit in order to help secure longer-term sustainable growth, even if, as appears likely, such policy actions lead to lower growth in the short- to medium-term.

What is not clear is whether this narrative, linking the timing of the Party Congress and associated leadership changes to the pace of reform, compelling as it sounds, maps into any reality of Chinese political economy, or whether it just finds its glory in the minds of Western observers. Either way, the aftermath of the upcoming National Congress of the Communist Party of China bears close watching.

Will The Japanese Economy Finally Start To Reflate?

Another thing to watch out for in 2018: long-awaited signs of full-fledged Japanese reflation.

It is now just over a year since the BOJ rebooted its no-holds-barred monetary policy experiment under Governor Haruhiko Kuroda by introducing Quantitative and Qualitative Monetary Easing with Yield Curve Control (QQE with YCC). This framework has two pillars: targeting two points on the yield curve, the overnight rate and the 10-year Japanese government bond (JGB) yield, at minus 10 bps and around 0%, respectively; and committing to continue to expand its holdings of Japanese Government Bonds, or JGBs, until CPI (excluding fresh food) inflation is stably above 2%. In its latest statement, the BOJ notes that it expects its holdings of JGBs to continue to increase by around ¥80 trillion per year, guidance it has maintained since adopting QQE with YCC in September 2016 (14). As a result of its three variants of QQE since April 2013, the BOJ now owns about 42% of outstanding JGBs (and financing bills) (15).

Taken at face value, the "overshoot" commitment in QQE with YCC (subsuming the earlier commitment to continue with QQE, "aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner") has a surprising implication. The JGB purchases by the BOJ are tantamount to a debt refinancing operation of the consolidated government, whereby the central bank, rather than the Treasury, retires long-term government debt securities and refinances them into central bank money (reserves). Assume that the BOJ sticks to this commitment. Logically one of two things should end up happening.

One is that, as the BOJ aims for and expects, at some point the BOJ will succeed in achieving 2% inflation and keeping inflation around that level, in which case it will presumably stop buying JGBs (and at some later stage decide when, to what extent, and how to shrink its bloated balance sheet).

A second logical possibility is that no amount of JGB purchases by the BOJ will succeed in achieving 2% inflation; in that case, if it stuck to its guns, the BOJ would end up refinancing the total stock of JGBs in existence into central bank money and could finance any ongoing annual budget deficits by creating central bank money. There would be no government debt securities in the hands of the public, only bank deposits which have central bank reserves as their asset backing.

It would seem that the BOJ, with the government's support, wittingly or unwittingly has set up a scheme that renders moot one of Japan's two big macroeconomic challenges: its chronic deflation and its mounting government debt.

Despite this aggressive monetary policy stance, inflation shows little signs of picking up any time soon. Headline CPI inflation in September was 0.7% year on year, as was the BOJ's favored measure (CPI excluding fresh food), but the core measure more commonly used internationally, CPI excluding fresh food and energy, was just 0.2% year on year. There has been an improvement in the trend, however. In the first quarter of 2013, just before the introduction of QQE, headline CPI inflation averaged -0.6% year on year, and core CPI averaged -0.7% year on year. Nonetheless, it remains the case that inflation has been doggedly resistant to aggressive monetary easing.

Could this be about to change, though? All the talk in Japan these days is of a tight labor market and labor shortages. Foreign workers in Japan surpassed the one million mark last year for the first time ever. The unemployment rate is 2.8%, its lowest level since November 1993. The closely watched measure of labor market tightness, the job offers-to-applicants ratio, stands at 1.52 times, up from a recent trough of 0.43 times in July 2009 and at its highest (indicating tightest) level since February 1974. Meanwhile, real GDP growth above the potential growth rate (now reckoned by the BOJ to be 0.8%) looks set to continue, suggesting that the labor market is set to tighten further, a trend that stands to be amplified by the aging of the population.

So far, wages have not responded much to the tightening labor market: Total cash earnings (three-month moving average) are rising at a rate of 0.2% year on year, and scheduled wages, a better indicator of underlying wage trends, are increasing by 0.5% year on year. These are up from their recent troughs of -1.3% year on year (December 2012) and -1.1% year on year (March 2013), respectively.

But before that, all eyes will be on who will replace Governor Kuroda when his five-year term expires on April 8, 2018, or whether, bucking well-established convention, Governor Kuroda is offered a second term or at the least the first part of one. Another moving part that could impact this decision is how Prime Minister Shinzo Abe fairs in the upcoming House of Representatives election on Oct. 22. A surprisingly bad result at the polls resulting in Mr. Abe's demise as prime minister would throw a spanner in the works when it comes to the public's expectations for the future course of monetary policy, itself a critical variable in conditioning the public's inflation expectations and the chances of reflation success for the BOJ.


(1) Reflecting subsequent economic developments, some of the decimal points in the following forecasts have changed since I delivered these remarks. I cite our most up-to-date forecasts below.

(2) After the Global Financial Crisis and Great Recession, real GDP growth in the U.S. turned positive in third-quarter 2009, and since then real GDP growth in quarter on quarter seasonally adjusted annualized terms has averaged 2.2%.

(3) While the standard headline (U3) measure of the unemployment rate (as of September) is now 4.2%, its lowest level since December 2000, the broader (U6) measure, which captures underemployment, is at 8.3%, and the labor force participation rate, at 63.1% (other than the recent past) is close to a 40-year low. The so-called "dot plot" of Federal Open Market Committee members shows a median forecast for the federal funds rate of 2.13% as of the end of 2018, and the Fed, while starting to allow its stock of QE to unwind from October, plans to do so in a gradual, digestible (to the market), and well-telegraphed way. The S&P500 (as of Oct. 9, 2017) had risen by 18.9% since the presidential election on Nov. 8, 2016, compared with 3.1%, -0.8%, and 7.7%, respectively, in the same period in the prior three years.

(4) For reasons likely related to the unique economic and political architecture of the euro area, it being a monetary union but not a fiscal and fully fledged political union, the ECB, compared with the Fed and the Bank of England (BoE), was very slow to adopt QE. Starting the clock ticking in September 2008, it took the Fed three months (although it did not use the words "QE," announcing instead its intent to "sustain the size of [its] balance sheet at a high level"), and it took the BoE six months (it did use those words), but it took the ECB 72 months. After quelling the sovereign debt crisis with its Outright Monetary Transactions framework in September 2012, the ECB allowed its balance sheet to shrink to €1.99 trillion on Sept. 9, 2014, from €3.10 trillion on June 29, 2012, while the Fed was continuing to expand its balance sheet under QE3. In its Sept. 4, 2014, monetary policy statement, the ECB announced asset purchases and other measures aimed at "[having] a sizeable impact on [its] balance sheet," specifically according to ECB President Mario Draghi to "steer, significantly steer, the size of our balance sheet toward the dimensions it used to have at the beginning of 2012." Late to the game it may have been, but since mid-2014 the ECB has implemented an aggressive set of monetary policies, cutting its main refinancing rate to 0% and its deposit rate to minus 40 bps, committing to continue to expand its balance sheet at the rate of €60 billion per month until it judges it is on course to achieve its inflation target, and stating that it will not raise interest rates until "well past" the horizon of its net asset purchases.

(5) India's financial or fiscal year runs from April 1 to March 31.

(6) Given that there is a two-year term, all (435) members of the House of Representatives are up for reelection and one-third of senators are.

(7) Admittedly, the recent spat between the president and Senator Bob Corker, Republican senator and chairman of the Senate's Committee on Foreign Relations, would seem to suggest the opposite.

(8) According to Section 10(1) of the Federal Reserve Act, the President appoints members of the Board and specifically the Chair and the two Vice Chairs, "by and with the advice and consent of the Senate." This means that 51 votes (out of one hundred senators) are needed.

(9) The low point of the U3 unemployment rate in the U.S. was 2.5% in the 1950s, 3.4% in the 1960s, 3.9% in the 1970s, 5.0% in the 1980s, 4.0% in the 1990s, 3.8% in the 2000s, and the current 4.3% this decade. The all-time low point for the U6 underemployment rate, for which data began only in January 1994, is 6.8% (in October 2000), and its low point prior to the financial crisis was 7.9% (in December 2006). The labor force participation rate, which is heavily influenced by demographic and social trends, began a steady rise in the mid-1960s from the 58%-60% range it had been in in the postwar period, and reached a high point of 67.3% in January 2000. After declining modestly in the first half of the 2000s and then flattening out, it experienced a precipitate decline of 3 percentage points after the financial crisis, from which it now appears to be slowly recovering. See also the third footnote.

(10) See "Time For Some Blue-sky Thinking On The Future Of Macroeconomic Policy," RatingsDirect, March 24, 2016.

(11) In Japan, the governor of the central bank is a sitting member of the corresponding body, the Council on Economic and Fiscal Policy, which was established in January 2001, as one of the institutional learnings of Japan's banking crisis and ensuing economic malaise.

(12) According to Lerner, who was a contemporary of John Maynard Keynes: "The central idea [of Functional Finance] is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established doctrine of what is sound or unsound." See Abba Lerner, 1943: "Functional finance and the federal debt," Social Research, Vol.10, No.1, pp.38-51.

(13) The five scenarios are: 1) Carrying On: The EU27 focuses on delivering its positive reform agenda; 2) Nothing but the Single Market: The EU27 is gradually re-centred on the single market; 3) Those Who Want More Do More: The EU27 allows willing Member States to do more together in specific areas; 4) Doing Less More Efficiently: The EU27 focuses on delivering more and faster in selected policy areas, while doing less elsewhere; 5) Doing Much More Together: Member States decide to do much more together across all policy areas.

(14) Somewhat problematically, the BOJ's actions are at odds with its policy guidance. Latest figures show that its holdings of JGBs have increased by only ¥38.3 trillion, not by ¥80 trillion, in the past year.

(15) The other two versions are the original QQE introduced in April 2013 and QQE with Negative Interest Rates, whose introduction was announced in January 2016.