Introduction: so far, so good

Looking back over the past two decades, several global economic trends can be identified. Lower and less volatile inflation, accompanied by higher and less volatile output growth, were welcome features. Less welcome were growing external and internal imbalances, the latter leading to more frequent periods of financial stress often associated with rapid increases in credit, asset prices and fixed investment. All these trends have their roots in three major structural changes: the spread of liberalisation throughout the global economy; the development of more complete financial markets; and the increased focus of central banks on low inflation. Looking back over the last fiscal year, strong growth and low inflation were maintained, but so too were external imbalances. Financial markets showed further evidence of overextension, reflecting the search for yield given very low policy rates, and house prices in many countries set new records.