The monetary policy “normalization” period was proved to be short-lived as major central banks decided to delay or reverse their normalization paths in response to the global slowdown resulting from trade conflicts. Excess liquidity created in this low-for-long environment has led to at least two areas of vulnerabilities. Overleveraging of businesses The first area of vulnerability is the overleveraging of businesses. According to the recent IMF’s Global Financial Stability Report, corporate debt has spurred in recent years. In the event of a global economic downturn that is half as severe as the one spurred by the Global Financial Crisis, the IMF estimated that almost 40 percent of corporate debt—approximately 19 trillion USD—could be at risk of defaulting, exceeding the levels seen during the last crisis. In Thailand, we could observe high leverage in many business segments. Some firms even take on debts to buy back their equities from shareholders, thereby reducing their equity base. Moreover, some large corporations have increasingly engaged in new investment outside their core businesses, making risk assessments challenging. 8  In this rapidly changing world, the path ahead is filled with risks and uncertainties that may affect businesses’ revenue and cash flows. Businesses need to ensure appropriate capital structure. Having too much debt will heighten financial vulnerability and could amplify the effects of adverse shocks. Importantly, while debt is necessary for investment and financing through debt is especially enticing in this low interest rate environment, an appropriate level of equity must be preserved to ensure sufficient cushion for adverse events.

In the situation where some forecasts have been extremely pessimistic, one might expect markets to adjust correspondingly in an abrupt fashion. In the event, in the foreign exchange markets the dollar overall has remained rather steady; and the short-term interest rate futures curve implies that rates are expected to bottom out later this year and then begin to rise. Moreover, while the stock market has fallen back over the past year from what many felt were unrealistic levels, and has been volatile again in recent days, the downturn in the mainstream market has so far been relatively limited, with the greatest fall concentrated in more speculative stocks. Equity valuations are always uncertain at times of adjustment, and we could see some continued volatility in that area, but the overall picture is that the markets as a whole are "looking through" the present slowdown, on the basis that they see a reasonable prospect for a recovery in US growth after the present adjustment. A second area of uncertainty lies much closer to home, and happily its ramifications are almost wholly beneficent. This is the question of whether changes in the supply-side of the UK economy mean that we can hope to achieve higher rates of sustainable growth, consistently with our inflation target, than has been possible in the past. One essentially empirical argument that is sometimes made to suggest that we can achieve faster sustainable growth is that inflation has in fact run a little below our target for most of the past two years.