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The crisis of massive economic growth has rekindled the old nemesis of investors: the economic downturn.
Concerns about inflation have been making in the markets this year. But with $ 80 a barrel of oil, the third-highest global price in the world over last year and other factors over the next decade, economists say higher inflation is expected to coincide with a slowdown in growth – making it even worse.
Economists and investors are comparing them to what happened after the 1970s oil spill, which led to “stagflation”. Subsequently, inflation and interest rates reached two levels, unemployment increased and GDP slowly recovered from the recurring repayments.
But with the current debt crisis, many are worried about the downturn as central banks prepare to raise interest rates to protect long-term inflation.
“The debate over inflation has changed,” said Seema Shah, chief of experts at Principal Global Investors. “We still agree that most of it is temporary, but we still think it will expire by 2022 and it will start costing consumers money.”
“It’s not the 1970s, but it’s a lot of modernity.”
Signs in the Federal Reserve and the Bank of England last week that they could start raising prices have grown big sale one and a half weeks ago. But in contrast to the “reflation” trade earlier this year, stocks failed to console in the hope that strong economic terms will be combined with faster growth.
Ample evidence shows that a strong global upheaval, combined with the Delta-type coronavirus, is contributing to the rapid growth.
Most of the results released this week show a slight decline in Chinese production, as regulatory pressures and high-energy prices close production. Business surveys from the US, UK and the eurozone show that the incidence of decline has dropped as the delivery time has begun to extend far beyond the rear.
Commercial activity declined in the stock market this week after data showed US consumer confidence declined to six months in August.
The UK has found itself at the forefront of concerns over the economic downturn, rising electricity prices are exacerbated by a shortage of drivers which has left petrol pumps dry.
While the predictable events that were modified came back faster than expected in the summer, recovery now seems to be weakening. Bank of England Governor Andrew Bailey acknowledged this week that unemployment and job losses are on the rise, and could stem the rise in oil prices over the next few months.
“Recovery has slowed and the economy has collapsed due to other risks,” he told the Society for Professional Economists.
Growing tensions are what keeps the pounds from benefiting from the sharp rise in UK governments, as they do, after Bailey said the increase could come this year. On the contrary, sterling has reached the lowest level of 2021 against the dollar, as some traders fear that initial price increases hamper weak recovery.
“If it’s stagflation, central banks have agreed,” said Jim Leaviss, chief financial officer at M&G Investments. “Mountain climbing reduces costs and saves money. But there will be no problems with sales teams [ . . .] will not reimburse motorists. “
The crisis – which some major banks have shared – could threaten financial markets, according to Mohamed El-Erian, Allianz’s chief financial adviser.
“Central banks will be torn between dealing with ‘deer’ and ‘flation’,” he said. “It is a country where the trust of investors in those who make these decisions has been shaken, and the backs they have had for the past 10 years are no more.”
Vicky Redwood, chief financial adviser at Capital Economics, said the UK’s “stagflation lite” was evident in many countries – inflation began in the US, but growth was slowing due to Delta’s spread of coronavirus mutations.
But inflation is expected to begin to decline in 2022 and things were still “as far away as the 1970s,” he said, adding: “We will not see the recession approaching as we did at the time.”
Some warn, however, that there is no indication of the difficulties involved in mitigation, and that the world could move forward in a much shorter period of time and higher inflation than predictors have predicted.
“It’s a global problem,” says Kallum Pickering, an economist at Berenberg.
If the sales crisis persists for six to 12 months, while consumers are still secure at work and are willing to pay for the goods they want, he said: “Fraud frustration can be very bad”.
Additional reports by Federica Cocco