Economic activity in the world’s major industrialised countries held up better than expected last year. With China’s economy now reopening and European gas prices on the retreat, the mood music seems to be shifting into a more positive key. Indeed, last week in Davos the head of the IMF, Kristalina Georgieva, noted that the outlook was “less bad” than feared a few months ago. But while these are positive developments, observers should not get carried away. One reason for the resilience seems to have been households using their pandemic-related savings, a source of demand that cannot continue indefinitely. Moreover, although headline inflation has been falling in some places, core inflation remains stubbornly high; central banks appear likely to make further, demand-reducing increases in interest rates. Last week’s Empire State manufacturing survey also provides a reminder that business activity and sentiment remain very weak in some places.
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