What is 'Sweet Spot'

The sweet spot is the point at which an indicator or policy provides the optimal balance of costs and benefits. This term is often used to refer to situations where economic data, such as interest rates or employment numbers, are currently or expected to lead to the best overall economic situation.

BREAKING DOWN 'Sweet Spot'

For example, the current level of interest rates can be considered to be in a sweet spot if they keep inflationary pressures in check, but don't do so at the cost of the overall market. Similarly, when the current level of employment in an economy is enough to stimulate economic growth without leading to higher levels of inflation through wage pressures, this could also be referred to as a sweet spot.

In January, 2018, International Monetary Fund chief Christine Lagarde said the global economy was in a sweet spot with all major economies doing well, though risks still remained with concerns about U.S. tax cuts, growing inequality and lack of international cooperation. 

Defining the Sweet Spot of a Global Economy

Indeed, the balance between costs and benefits for the global economy as a whole seems to have hit a new type of sweet spot in 2018. One of the hallmark traits of hitting such a sweet spot is the growth of the middle class.

In recent history, the world has gone through two great expansions of the middle class since 1800, and current times are the third. In the 19th century, the Industrial Revolution created an economic sweet spot that gave rise to a substantial middle class in Western Europe and the United States. Another period of middle-class growth occurred after World War II, once again in Europe and North America and also in Japan. Today’s expansion is happening in the emerging markets. In Asia alone, 525 million people have entered the middle class — more than the total population of the European Union. Over the next two decades, experts estimate that the middle class will expand by another three billion people, coming almost exclusively from the emerging world.

“Middle class” is a broad term; in many countries the term carries a good deal of political, social and historical baggage. For both economists and business executives, who need accurate and quantifiable information, it’s not really an issue of “class” at all, but rather income and spending power. But even when reduced to pure economics, it's still difficult to define "middle class;" for instance, depending on the standards used, estimates of the size of India’s current middle class range from 30 million to 300 million.

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