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  • 1 min

Economic Policy Shocks

  • 20 February 2019
  • Philippe Waechter
  • Economic Policy
  • World Trade
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The desynchronization of economic policies, especially in the US, has caused negative shocks to the global economy, resulting in a downward synchronization of the economic cycle. Trade policies create breaks in value chains and all countries are affected (one product is manufactured in 3 countries A, B and C. If tariffs are put on the link between A and B reducing or modifying the activity on the product in A and B so C is affected). The dynamics of trade has been reduced in recent months in Asia (not just China) affecting exports in the Euro zone (see graph).

Productivity gains are no longer enough to cause an endogenous rebound in growth. Shocks therefore have persistence. Consequently, monetary policies will remain permanently accommodative and interest rates will remain very low for all maturities.
The economic model and the social model will have to adjust to this new pace. Hard challenge for European countries

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