Stagflation at First Glance - 1PAR Newsletter #4
According to the World Bank's latest Global Economic Outlook report in June (“Report”) — in the 1st half of 2022, Russia’s invasion of Ukraine and the damage from the COVID-19, are worsening the slowdown in the global economy, which is entering what could be a prolonged period of fragile growth and soaring inflation, that’s called Stagflation, which is critical for middle- and lower-income economies with harmful effects.
So the Report is the first in a half-century to set how the current global economy compares to literally what happened in the 1970s. 1970s Stagflation started with the sharply higher rates mainly in the U.S. and Europe, then triggered a series of financial crises in callow markets and countries.
Global Economy Real GDP Percentage Change (on the rightmost, from Jan to June)
Now they expect the global growth to slow to 2.9% in 2022 from 5.7% in 2021, well below the 4.1% expected in January. With the war in Ukraine disrupting economic activity, investment, and trade in the short term, pent-up demand has subsided and fiscal and monetary policy easing has been withdrawn and is expected to hover around this pace in 2023-24. Per capita income levels in developing economies will be nearly 5% lower this year than pre-pandemic trends.
The war in Ukraine, China's lock-off, supply chain disruptions, and the risk of stagflation are hitting growth. For many countries, a recession might be unavoidable, so encouraging production and avoiding trade restrictions should be a priority for them. Fiscal, monetary, climate, and debt policies need to change to address capital misallocation and inequality.
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Newsletter Reference Reads
World Bank, (2022). Stagflation Risk Rises Amid Sharp Slowdown in Growth. (Online).
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