Deutsche Bank Foresees a New Era for the Global Economy: Scarcity, Frequent Inflation Spikes, and Governments Unable to Control It

The world is heading toward a supply-dominated economic regime where goods scarcity and inflation spikes will be common, making demand stimulus policies obsolete.

The world is changing, and it doesn't seem like it will be for the better, at least economically. **Deutsche Bank** has released a report painting a bleak picture of a new era for the global economy. Forget the years of prosperity with zero interest rates and stable prices. What is coming, according to these economists, is a scenario of scarcity, with frequent price rises and governments struggling to control the situation.

Not so long ago, around **2020**, developed economies navigated through negative or zero interest rates. The problem was excess: too much was produced, savings were excessive, and prices, if they fell at all. Demand wasn't responding, not even with near-free money. The only time we saw scarcity was at the peak of the pandemic, with masks and medical supplies flying off the shelves. But that was a momentary peak. Now, it seems to be structural.

## The Revenge of Supply

The key to this new era, according to **Henry Allen**, a strategist at **Deutsche Bank**, is that we have returned to a world dominated by supply. It is no longer demand setting the pace, but production capacity. Growth is constrained by the lack of goods and services. Events such as the closure of the **Strait of Hormuz** have already demonstrated how a supply bottleneck can drive up oil prices, generate inflation, and stall the economy. This shift in macroeconomic regime, where supply is the primary constraint, renders many economic prescriptions that worked in the **2010s** useless.

When production encounters limits—whether due to tariffs, wars, or simply lack of capacity—injecting more money into the economy, whether by lowering interest rates or increasing public spending, only serves to inflate prices. Consider it: if there isn't enough diesel because refineries cannot cope or oil doesn't arrive, or if chip factories cannot produce faster, that extra money won't translate into more goods; it will only lead to higher prices. It is a vicious cycle where demand meets rigid supply.

## Labor Market Tension

This scenario of scarcity and limited supply has a direct effect on the labor market. Workers, seeing prices rise and potentially seeing that the supply of labor might begin to shrink (think of the retirement of the **baby boom** generation), will start demanding higher wages. Companies, to retain talent, will have no choice but to raise salaries. This, in turn, further fuels inflation, creating a difficult price-wage spiral.

The consequences for the global economy are clear. Inflation spikes will be more frequent because there won't be enough idle productive capacity to respond to increased demand. Furthermore, there are significant structural risks. The retirement of the **baby boom** generation, which retires with considerable savings and high pensions, will maintain a high level of consumption in an economy with fewer people working and producing. The result is constant upward pressure on prices. If pensions are also indexed to this rampant inflation, the problem worsens year after year.

## Old Tools No Longer Work

Here is the most worrying part: the tools that central banks and governments have used until now to manage the economy are losing much of their effectiveness. Monetary policies, designed to stimulate demand, cannot solve problems stemming from the supply side. Lowering interest rates or injecting liquidity will not magically create more chips or make refineries produce more.

On the other hand, fiscal stimulus in a supply-constrained economy is even more inflationary. Not only does it raise prices, but it also runs the risk of crowding out private investment—meaning public money occupies space that could have been used by companies to increase their productive capacity.

The conclusion of the **Deutsche Bank** report is forceful: the old premises of the **2010s** are no longer valid. A structural break has occurred. We have moved from a world where it was assumed that supply would adapt to demand, to one where supply is once again a significant constraint.

Looking ahead, the main challenge for policymakers will be to expand the economy's "productive frontier." This means implementing supply-side policies: making the labor market more flexible, considering raising retirement age, and incentivizing private investment to increase production capacity. Only then can we prevent inflation and scarcity from taking over the global economy. Future growth, if we want the general standard of living to improve, will depend on expanding supply, not on stimulating demand as it once did.