Soft landings: Difficult but by no means impossible

• ? Policymakers have rarely engineered soft landings, but central banks may be better placed to do so this time around. Crucially though, this relies on central banks being willing and able to use unconventional policy aggressively and China remaining the global shock‐absorber of last resort.
• ? The ability of policymakers to deliver a soft landing will depend on both cyclical and structural factors (see table below). Cyclical risks from prior over‐tightening by central banks or a burst of inflation limiting room to loosen policy seem small. The main cyclical worries currently stem from major financial market sell‐offs and balance sheet problems – and while these risks have risen, they are less of a worry than in 2007.
• ? On the structural side, less volatile activity and better data should make it quicker and easier to identify shocks than in prior decades. Meanwhile, transparent monetary policy frameworks and anchored inflation are limiting fears of inflation overshooting from constraining policy action. But some structural changes may hinder: globalisation has led to freer capital flows, which have the capacity to be destabilising and add to volatility.
• ? There are two other key uncertainties that will determine the likelihood of a gentle deceleration in growth. The first is the degree to which central banks are prepared to aggressively use unconventional policy and the effectiveness of this at delivering a boost to GDP growth. The second will be China's willingness to take growth‐boosting action. Even though Chinese policymakers may put a floor under growth, there is less chance than in the past of a large surge in imports.