However, sentiment is fickle and business cycles are temporary. Things are not great as they stand. There are worrying developments which are expected to weigh on prospects for the global economy and living standards for many years, including the heightened geopolitical tension, environmental degradation, increasing inequality, excessively high government debt levels, trade protectionism and the shift away from global economic integration.

Policymakers are beginning to respond. At Davos, the required drive towards sustainable investment remained top of mind. Although the solutions for some of the world’s problems are obvious, the resources to implement them are not abundant. Technological innovation could lift potential growth. However, the nascent shift towards “home bias” in economic policies, income inequality and a high level of business concentration is doing just the opposite, constraining the resources available to address the world’s problems.

The temptation is to loosen the fiscal purse strings. The US, for example, has large subsidies supporting locally-driven sustainable investment and consumption (electric vehicles). The problem is loose fiscal policies risk backing central banks into a corner. We appear set for a material bout of disinflation this year, mainly reflecting recent falls in commodity prices, and the US Federal Reserve appears close to the peak of its interest rate hiking cycle.

However, it is not clear that inflation will return sustainably to central bank target levels anytime soon. Core inflation is stubbornly high and labour markets in developed countries are tight, with a structural labour market shortage evident in the US.

In this environment, fiscal consolidation along with a reprioritisation of spending is needed. Ultimately, fiscal and monetary policies in developed countries have been too loose for too long and central banks are now making a stand.

Lastly, we appear to be leaving the era of very low or negative real interest rates and any excessive demand stimulation would risk even tighter monetary policies.