Ever since the global economy bottomed out in the spring of 2009, the hope has been that the world would return to the robust levels of growth seen in the years leading up to the financial crash. Time and again, the optimism has proved misplaced, with the IMF repeatedly revising down its forecasts. This year was no exception. “The recovery continues but it is weak and uneven,” said the IMF’s economic counsellor, Olivier Blanchard, as he announced that at 3.3%, growth rates would be 0.4 points lower than anticipated in the spring. What concerns the IMF is that the slowdown – particularly in the advanced countries of the west – may be permanent. The phrase being bandied around in Washington was “secular stagnation”, the notion that there has been a structural decline in potential growth rates. Blanchard said it was entirely possible that developed countries would never return to their pre-crisis growth levels, and that even achieving the lower rates of expansion now expected would require interest rates to be maintained at historically low levels.
Last week, the Bank of England announced that its official interest rate would be pegged at 0.5% – comfortably the lowest in its 320-year history – as it has been since March 2009. Although the City expects borrowing costs to start rising early next year, the peak is predicted to be far lower than the 5% average seen in the years since Gordon Brown gave the bank its independence in 1997. The message from the fund is that low interest rates, like low growth, are here to stay.
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