As monetary easing reaches its limits, major economies are moving away from austerity and beginning to consider fiscal stimulus, says BlackRock.
In a new monthly global macroeconomic outlook, BlackRock noted a change of tone on fiscal policy by the major economies.
"There is never a case for reckless ﬁscal spending, in our view. But productivity-enhancing ﬁscal expansion, such as infrastructure investment, now is likely to be more effective than usual," said BlackRock.
Both Japan and Canada have proceeded with public investment programs, said BlackRock. Infrastructure spending also features in the US presidential campaign, said the note.
"Investors have zeroed in on whether ﬁscal policy will play a greater role in lifting growth and inﬂation at a time when economies are still very policy-dependent," said BlackRock.
While acknowledging the case for fiscal expansion is "nothing new", BlackRock said the time has come for fiscal policy to "take the baton" from central banks.
"Not only are central banks reaching limits with rates testing the lower bound, but the lack of ﬁscal support may undermine the effectiveness of monetary easing," said BlackRock.
"We note an important change in tone among policymakers, away from austerity and toward ﬁscal spending. Even if the short-term growth implications are limited, this shift matters. The focus on ﬁscal stimulus is likely just beginning."
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