Deflation Concerns on Final Day of WEF

BBC Article

One of these was the fact that eurozone inflation, at 0.8%, remained “way below” the 2% target set by the European Central Bank (ECB).

Mario Draghi, president of the ECB, told the same conference that the bank was ready to act if necessary, but he insisted that deflation was not yet an issue for the eurozone.

[Ms Lagarde told a Davos] new risks were, how emerging economies responded to the winding down of economic stimulus measures in the US, and the problems facing economies whose inflation rate remained stubbornly below target.

My opinion: I always like to hear the phrase used by central banks, “ready to act if necessary”. It is a great confidence builder without saying much. Personally, I think the story here  is the concern about emerging economies brought up by Ms Lagarde. Economic growth around the world over the next 25 years will be fueled by the prosperity of emerging economies. Even though the US will almost certainly be sub-7% GDP growth over that time, new economies around the world could easily see 7-10%.  This is heavily dependent on continued trade and capital injection from developed countries however.

GDP growth potential in emerging economies (Latin America for instance) is huge as these are relatively untapped markets filled with labor and natural resources. Somebody please get these countries some baller FTA’s and manufacturing infrastructure!


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