Daily Chart: Wriggle room
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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. 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", The Economist 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. A few economies could mount a robust defence against a new shock, but most are sitting ducks. 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%. 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>
Source: The Economy