Page 87 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

ogy and new energy technologies—to name just two—will lay
the foundation for future growth and prosperity. Companies
will need to understand which innovations will drive the next
wave of economic development and how they can ride that
wave. Such an understanding will also help politicians to iden-
tify where to direct their fiscal stimulus.

■ THE BATTLE BETWEEN DEFLATION AND INFLATION ■

In this chapter, we have set out many of the most important
facts of business life in the new era of low growth—which we
term the new realities. But there is another potential new real-
ity that should not be ignored: the question of whether we will
see either deflation or inflation. This question takes on greater
significance in an era of low growth because the general eco-
nomic environment can make it either easier to raise prices
(inflation) or more difficult (deflation).
It is not easy to know whether, in the aftermath of the Great
Recession, deflation or inflation will prevail. In the first quar-
ter of 2009, the consensus was that deflation would assert itself.
Toward the end of the year, however, there was a growing view
that inflation or even hyperinflation would be the dominant
feature of the global economy. In our executive survey, about
half the respondents said that they expected deflation to be the
dominant feature in the short term. Over the medium term,
however, nearly three-quarters said that they expect to see
inflation.
This deflation-inflation debate is no mere academic diver-
sion. Knowing which of the two might assert itself and under-
standing their different effects will be an all-too-real new real-

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