Daily Chart: Wriggle room

Posted: June 12, 2015 in economy
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DURING the financial crisis, policymakers sprang into action to stimulate the economy. As a result, the recession, though bad, was far less severe than the Depression. Unfortunately, however, that quick response nearly exhausted governments’ economic arsenals. Seven years later they remain depleted.&nbsp;Should recession strike again, as inevitably it will, rich countries in particular will be ill-equipped to fend it off.To measure governments' "wriggle room",&nbsp;The Economist&nbsp;has devised a composite measure of debt, deficits and interest rates—the weapons policymakers typically wield to dispel threatening conditions. Though crude, the analysis yields a clear and troubling conclusion.&nbsp;A few economies could mount a robust defence against a new shock, but most are sitting ducks.&nbsp;At the beginning of 2007 the average central-bank policy rate in the countries in our ranking was just under 4%—low by historical standards, for instance, while the average for rich countries now is 0.3%.&nbsp;The mountain of public debt accumulated since 2007 adds a further constraint. Debt as a share of GDP is, on average, 50% higher than it was before the crisis.On average, the rich world’s wriggle room has fallen by about a third since 2007. Hopefully the next big shock will take its time …<div class="og_rss_groups"></div>

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