Press releases

It may be time to loosen the fiscal purse strings, says LGIM

Magdalena Polan, LGIM Senior Economist

Magdalena Polan, LGIM Senior EconomistLegal & General Investment Management (LGIM) predicts coordinated monetary-fiscal policy could revive growth and stoke inflation.

Despite exceptional and prolonged easing by central banks in the years since the financial crisis, global growth remains sub-par and inflation hovers near historical lows.

There are a number of reasons why monetary policy has not been more successful post-crisis. LGIM Senior Economist Magdalena Polan (photo, right) suggests a significant contributor has been tight fiscal policy, due to its negative impact on growth and expectations.

"Fiscal austerity has a more negative impact on the economy when growth is already weak. Tightening fiscal policy soon after the recession, especially in the euro area, therefore likely prolonged the slowdown," says Magdalena.

"This has led to calls for relaxing fiscal policy to support growth directly and to increase the effectiveness of monetary policy. And indeed, both economic theory and empirical evidence suggest a fiscal boost and closer policy coordination would be more effective together.

"In contrast to monetary policy, whose effects are inherently uncertain and indirect, fiscal easing would support economic output directly in the short term by increasing demand.

"But not all countries would benefit from fiscal expansion. Those with weaker institutions may not see an impact on growth. Still more lack the necessary ‘fiscal space’ to accommodate government easing.

"Countries that suffered from the financial crisis, as well as a range of emerging market economies that are still adjusting to lower commodity prices or weaker global trade, have seen a relatively fast increase of debt in recent years and have less space to increase debt without triggering sustainability concerns.

"However, these countries may still benefit from the spill-overs of increased investment demand elsewhere."


Cover of the September 2016 Fundamentals briefing. Click on the adjacent link to download the PDF.To read the full four-page Fundamentals September 2016 briefing, "Time for coordinated policy to revive growth?", please click here (PDF, 303 KB)

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Notes to editors:


Legal & General Investment Management is one of Europe’s largest asset managers and a major global investor, with total assets of £853 billion*. We work with a wide range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors.

Throughout the past 40 years we have built our business through understanding what matters most to our clients and transforming this insight into valuable, accessible investment products and solutions. We provide investment expertise across the full spectrum of asset classes including fixed income, equities, commercial property and cash. Our capabilities range from index-tracking and active strategies to liquidity management and liability-based risk management solutions.

*LGIM internal data as at 30 June 2016. These figures include assets managed by LGIMA, an SEC Registered Investment Advisor. Data includes derivative positions and advisory assets.