The relative calm that has taken hold in the global economy gives policymakers around the world an opportunity to tackle underlying obstacles to growth. Priorities should include bringing public finances under control, fostering household and business confidence, and devising clear policy frameworks to boost productivity growth. ITHACA – After a tumultuous couple of years, the global economy finally seems to be in recovery mode. But beneath a placid surface of falling inflation and rising overall growth lie considerable inconsistencies, weaknesses, and tensions, reflected in tanking private-sector confidence.

With China teetering on the edge of a deflationary trap, the question of how to avoid a Japanese-style "lost three decades" has become urgent. While China’s government is on the right track with its recently announced stimulus package, more is needed to break the cycle of declining spending and falling prices.