The world is entering a macroeconomic era of medium-term supply shortfalls that will require new large investments, according to the chairman of Singapore’s central bank.
“We have to confront the fact that we are not just dealing with immediate shocks in demand or supply,” when it comes to inflation, Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore, said at a Boao Forum for Asia event on Friday. “But we are dealing with a fundamentally new macroeconomic environment globally.”
The recovery from the pandemic for many countries has hit a new challenge of surging inflation, driven by pent-up demand, higher commodities and stubborn supply chain snags.
Strong consumer price gains, which have hit the fastest since the early 1980s in the US, are forcing policy makers to navigate between cooling inflation without tipping their economies into recession.
Tharman, who is also Singapore’s senior minister and an influential voice on global economics, was addressing the challenge of inflation and higher interest rates on a virtual panel with speakers including central bankers from China and Thailand.
On top of short-term supply and demand issues, the basic characteristic of this new era, Tharman said, is one of medium-term aggregate supply shortfalls, part of paying the price for underinvestment for many years in supply capacity.
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Large investments are needed in transitional and renewable energy, connectivity, water resources, as well as human capital and education, he said.
Solving supply side problems in the medium term will require “a new global bargain,” which will include mobilizing and “de-risking” private capital to invest in emerging economies and raising taxes in both advanced and emerging economies.
