Why big fiscal deficits and low inflation can coexist | Global

The surge in government debt caused by ballooning fiscal deficits is a necessary response to the coronavirus crisis. Even if governments fail to meet existing fiscal consolidation plans, which we think is likely, we doubt it will lead to a burst of inflation in the advanced economies (AEs), let alone a debt crisis.

While many have flagged a sustained period of loose fiscal policy as a key inflation risk, a slower narrowing of fiscal deficits than we forecast wouldn’t automatically lead to a period of above-target inflation. Indeed, we wouldn’t be surprised if larger-than-expected deficits were associated with weak inflation.

Download our analysis to learn about:

  • For how long we expect advanced economies to be in deficit 
  • Whether inflation is likely to happen
  • Probable medium-term government measures 

Topics: Japanification

Why big fiscal deficits and low inflation can coexi