Global financial markets are quickly moving from confidence to euphoria. There is definitely a lot to cheer about. The world economy looks to be at its strongest since the global financial crisis. India, too, is expected to recover from the effects of the twin policy shocks since November 2016.
International Monetary Fund chief economist Maurice Obstfeld has done well to warn that the current sweet spot is not necessarily the new normal. There are three important issues for policymakers. First, potential growth is still far below what it was during the first decade of the century. Second, the risks of future financial instability cannot be wished away. Third, policy space to deal with sudden shocks is compromised because of high levels of public debt in several countries.
The good news is that the global economy seems to have finally come out of the shadow of the financial crisis. The financial markets are naturally celebrating. Policymakers have to be more cautious, rather than get carried away by the exuberance, as they did a decade ago.