Inflation, recession, or stagflation? What’s next for global economy? | Experts’ Opinion

ByCatalina Russu

Inflation, recession, or stagflation? What’s next for global economy? | Experts’ Opinion

The world is rapidly rolling through times of uncertainty on all levels of humanity’s existence with the Russian invasion of Ukraine and the economic sanctions that triggered a fuel crisis, the after-effects of the COVID-19 pandemic, and the advancement of climate change. Together, these have all magnified the slowdown in the global economy which may be entering “what could become a protracted period of feeble growth and elevated inflation”, according to the World Bank’s Global Economic Prospects report. Inflation, recession, or stagflation? What next for the global economy? If you are curious to find out what others think, check some opinions below.

Key Takeaways:

  • According to International Monetary Fund, global inflation is forecast to rise from 4.7% in 2021 to 8.8% in 2022, followed by a decline to 6.5% in 2023 and to 4.1% by 2024.
  • While the world is not officially in a recession, experts show concern about what the continued inflation rate spikes may do to the economy.
  • Economists warn that the potential of stagflation is increasing, especially in countries that have high budget and current account deficits.
  • Green industries may be the driver to overcome job loss and inflation.

DevelopmentAid: Inflation, recession, or stagflation? What’s next for the global economy? Argue your position.

Ryan Assiu, Climate Change and Sustainability Consultant

“The world has seen several supply-side shocks driven by disruptions to global energy flows due to the Russian-Ukraine war, and climate-mediated hazards, such as the 2022 drought across Europe. A consequence of a global energy system tied to centralized fossil-energy supply is that disruptions carry knock-on effects on food, manufacturing, and other industries. It is unequivocal that cost-push inflation has been occurring with several countries reporting increases in both core and food inflation due to the increased costs associated with energy and raw materials. The impacts are being felt by the most vulnerable countries such as Caribbean small island developing states (SIDS), and especially among the most vulnerable populations within those countries. In response to rising inflation, central banks have begun raising interest rates. This will drive down economic activity and continue the economic contraction observed across many countries for several months. In no uncertain terms, this situation will be classified as a ‘recession’ by early 2023. For there to be ‘stagflation’, there needs to be a perfect storm of high inflation, low growth, and high unemployment. Although the first two ingredients are expected, many countries have done well to constrain unemployment. Households may feel squeezed, but unemployment will remain broadly under control as governments focus on stabilizing losses amidst this volatile time. As the global economy slows due to these energy and climate-mediated shocks, the need for green growth is underscored. Investments into renewables and the just transition of workforces into green industry will be the necessary drivers to get us out of the economic slow-down, and ensure that it is avoided in the future.”

Adrián Moreno, International Aid / Cooperation Officer at European Commission

“Most central banks forecast some GDP growth for the national economies they serve. Therefore, according to Bretton Woods Institutions, the world economy is heading into a period of recession, that is a slowdown of economic growth, but still it is growth. Although statistically, national economies will be impacted by the Russian invasion in different ways, some experts indicate that the inflation period had started a bit earlier than before the war. Another element that cannot be denied is the increased military budgets, as states more exposed to the war review the scenarios. This may have an impact on the public promotion of other sectors not related to the army. For the block of economies closer to this conjuncture, a period with characteristics similar to those of stagflation may appear to begin, although these will be standalone cases. The green energy industries will be boosted while signs of market reorganization in the traditional energy industry are already appearing, all elements that will contribute to the inflation phenomenon.”

Konstantin Karabanov, Independent Economic Development Consultant

“I think that the world is on the verge of a major economic crisis, and the conflict between Russia and Ukraine is not the only and definitely not the most important reason for this. To my mind, the reasons include the consequences of the COVID-19 pandemic, interest rate hikes by central banks in an attempt to contain inflation caused by “helicopter money” and “cheap money” policies; the appreciation of the US dollar, the decline of the euro and the pound sterling to almost that of parity. Finally, the rapid rise in energy prices and attempts by the governments of some European countries to compensate their population by increasing budget expenditures and reducing taxes. The looming crisis will be man (or woman)-made, and it will begin in one of the world’s financial centers.”

Camilo Blanco, Financial Risk Analyst

“The current geopolitical and economic situation, complicated by some still unresolved issues that arose from the COVID-19 pandemic in 2019-2020, is entering a new phase of low growth, high inflation, and a renewed effort conducted by central banks around the world to contain the current inflationary wave, which is anticipating a very difficult and uncertain 2023, where the potential of stagflation is increasing, especially in countries that have a high budget- and current account deficits. Unfortunately, the use of monetary policy tools – interest rate increases and reducing the quantity of money available to the economy – is not going to make a significant dent in the underlying causes of inflation which are basically tied to the effects of economic sanctions on Russia and the lower availability of commodities like oil, gas, fertilizers and other items which force an increase in industrial prices which are ultimately transferred to consumers. Depending on the reaction of central banks to the latest results of inflation in the US and other leading economies and the use of stronger monetary measures, we will see if the current situation could transform into a global recession or worse, into a long period of stagflation, which will be quite difficult to combat.”

Dr. Ksenija Popovic, Corporate Credit Risk & Debt Recovery expert

“Events that have the power to cause global negative macroeconomic shocks are piling up. Large migration flows, the pandemic crisis, the war in Ukraine, difficulty in energy and food supply, and increases in energy and food prices, etc. The authorities in most developed countries undertake various measures in the field of monetary and fiscal policy in order to mitigate the negative effects of rising inflation. Unfortunately, there is great uncertainty as to how events will unfold in the future, but the impression remains that the negative flywheel is almost impossible to stop. However, as always, not all countries will be equally affected by the aforementioned crises, so some countries will have more problems with inflation, some with recession, and some with stagflation.”

Koit Puusaag, economy expert

“The global economy has been simultaneously hit by a number of unfavorable circumstances – the economic slowdown caused by COVID-19 restrictions, increasing energy and fuel prices due to the war in Ukraine, resulting in an increase of living costs and nearly uncontrollable interest rates. Meteorologists would call such a phenomenon a “perfect storm”. Based on the latest IMF predictions, a third of the world’s economy is expected to contract, and much of it hit with recession – we can even witness this today. Predicting the future is hard and whether we face global recession or mere stagflation has to be seen once the storm is over.”

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