slow growing

Not One Flood But Three

oil production Laif
Too much of a good thing.
  • Why it matters

    Why it matters

    Global growth rates are likely to slow down due to three trends and the way they interact with one another: the gluts of savings, oil production and money.

  • Facts


    • In 2014 and 2015, oversupply led to a sharp fall in the price of oil, leading to an oil glut.
    • Around the world, central banks have pursued monetary easing policies, leading to a money glut.
    • More people are saving than ever before, rather than investing, creating a savings glut.
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The global macro outlook is driven by the interaction among three gluts: the savings glut, the oil glut and the money glut.

While the global savings glut is likely the main secular force behind the global environment of low growth, low inflation and low interest rates, both the oil and the money glut should help lift demand growth, inflation and thus interest rates from their current depressed levels over the cyclical horizon.

Let’s look at each of the three gluts in turn.

The term “global savings glut” is a simplification, of course. Ben Bernanke coined the term a decade ago to describe a situation where an excess of global desired saving over global desired investment depresses low long-term interest rates.

Ten years later, it is fair to say that the ex-ante savings/investment imbalance is even greater and the global equilibrium real interest rate even lower.

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