LONDON (Financial Times) - The global economy is facing rifts comparable to the pressures that resulted in “economic nationalism” and a collapse in global trade in the 1920s and ultimately the Great Depression, the president of the European Central Bank has warned.
“We have faced the worst pandemic since the 1920s, the worst conflict in Europe since the 1940s and the worst energy shock since the 1970s,” said Christine Lagarde on Friday, adding that these disruptions combined with factors such as supply chain problems had permanently changed global economic activity.
In a speech at the IMF in Washington two days after the Federal Reserve cut interest rates by 50 basis points, pushing U.S. equity markets to record highs, the ECB president argued that several parallels “between the “two twenties — the 1920s and 2020s — stand out”, pointing to “setbacks in global trade integration” and technological advances in both eras. 
While monetary policy in the 1920s made matters worse as adherence to the gold standard pushed leading economies into deflation and banking crises, “we are in a better position today to address these structural changes than our predecessors were”, stressed Lagarde. 
A century ago, she said, central bankers learnt the hard way that pegging the currency to gold and fixed exchange rates was “not robust in times of profound structural change” as it pushed the world into deflation, fuelling “economic malaise” and contributing to a “cycle of economic nationalism”. 
Today, central bankers’ tools for preserving price stability “have proved effective”, she said. Lagarde pointed to the quick fall in inflation once central banks started to raise rates in 2022.