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Jacobus Lacock
(Macro Strategist & Fixed Income Portfolio Manager)

Make truth great again

Did we reach an economic and political tipping point in 2016? In a short space of time the policy framework supporting economic growth has shifted from monetary policy to fiscal policy, while the political narrative shifted towards nationalism.

The prevailing monetary policy framework was accused of fuelling inequality, while becoming less effective and unsustainable. At the same time fiscal policies started to play a bigger role as growing evidence supported the notion that the slow growth environment (secular stagnation) was caused by structural imbalances which can only be eliminated by large fiscal intervention. Thus, as we enter the final stretch of the current economic cycle, the pro-growth policy baton is being passed on by central bankers to politicians. The wall of liquidity injected into markets by global central banks is being replaced by a wall of steel and cement that aims to put national political and economic interests first.

Chart 1:  Fiscal policies turned pro-growth in 2016

Change in structural primary budget balance as % of GDP

Source: BCA Research, IMF WEO, Bloomberg

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