The initially strong rebound in the world economy is fading as structural weaknesses come to the fore again. Many countries, particularly in the West, need to reduce debt. But others with stronger fiscal and external positions are unable or unwilling to boost their own spending.
The result is that the West faces a long period of below-par growth. Emerging markets will continue to provide the bright spots, especially in Asia, but even China’s boom times are over. Different economic conditions in the highincome countries and in the developing world mean that policy coordination will be a huge challenge. This also suggests that extreme outcomes, such as a major trade war, are increasingly likely.
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