(Financial World) After 50 years, the "Great Stagflation" will be staged again?
China News Agency, Beijing, June 10 (Liu Wenwen) In the 1970s, an unprecedented "great stagflation" triggered by the oil crisis swept the United States, causing the US economy to fall into a severe recession.
Today, about 50 years later, under the influence of the impact of the epidemic and the conflict between Russia and Ukraine, global inflation is almost "out of control" and economic growth has slowed down.
Is the "Great Stagflation" coming back?
Inflation haze looms over the world
In December last year, in response to increasingly severe inflation, the Bank of England took the lead in raising interest rates among the central banks of major economies, leading to a global wave of interest rate hikes.
However, since then, the Bank of England has raised interest rates continuously, but it has still not been able to prevent inflation from soaring.
Data show that UK retail commodity prices rose by 2.8% in May this year, the highest since July 2011.
In fact, not only the UK, but the whole world is in the shadow of inflation.
U.S. Treasury Secretary Yellen said publicly that U.S. inflation is at an "unacceptable level" and that "although I very much hope that the inflation rate can come down now, I expect the inflation rate to remain high."
India's inflation rate in the first four months of 2022 exceeded the upper limit of the medium-term inflation target of 6%. The Reserve Bank of India announced on June 8 that it raised the benchmark interest rate by 50 basis points to 4.9%.
South Korea's consumer price index (CPI) rose 5.4% year-on-year in May, hitting a 14-year high.
Europe is also suffering from inflation.
Since the Russian-Ukrainian conflict, Europe has imposed six rounds of sanctions on Russia, which hurt Russia and also backfired on itself.
Soaring energy prices and a shortage of commodities are making Europe miserable.
Preliminary data from Eurostat showed that inflation in the euro zone reached an annualized rate of 8.1% in May, hitting a record high for the seventh consecutive month.
In response to rising inflation, the European Central Bank is planning to start raising interest rates and exit its eight-year negative interest rate policy.
Recession Signals Appear
Worryingly, high inflation has been accompanied by slowing economic growth.
According to reports, the Organisation for Economic Co-operation and Development (OECD) predicts that economic growth in the UK will stagnate next year, and among the major G20 economies, only Russia, which has been sanctioned by the West, will perform worse than the UK.
It's not just the UK.
The OECD lowered its forecast for global economic growth in 2022 to 3 percent from 4.5 percent previously, and expects global growth to slow further to 2.8 percent in 2023.
In the latest Global Economic Outlook, the World Bank expects global economic growth to slow from 5.7% in 2021 to 2.9% in 2022, well below the 4.1% forecast in January this year.
Will the "Great Stagflation" Reappear?
World Bank President Malpass said that the Russian-Ukrainian conflict, the epidemic, supply chain problems and the risk of stagflation are hindering economic growth, "for many countries, an economic recession will be inevitable."
While slashing global growth forecasts, the World Bank warned that the global economy could slip into 1970s-style stagflation.
After a lapse of about 50 years, will the "Great Stagflation" in the United States be staged again on a global scale?
Wang Xiaosong, a researcher at the National Institute of Development and Strategy of Renmin University of China, pointed out to China News Agency that in the 1970s, due to the severe inflation caused by the oil crisis, the expansionary economic policies adopted by Western countries, especially the United States, did not achieve obvious results, but caused high inflation. and low growth, leading to stagflation.
Wang Xiaosong said that there are indeed voices that there may be stagflation in the world today, and the direct trigger is that the conflict between Russia and Ukraine has led to skyrocketing energy prices, resulting in high inflation.
But it should be noted that "a decade later, Western countries have learned the lessons of the 1970s".
"We see that the current fiscal and monetary policies used by countries are more 'smart' than the government regulation in the 1970s, and countries are more rational in weighing and managing inflation and promoting economic growth."
He further pointed out that many countries have realized that by blindly adopting quantitative easing policies, the stimulus effect may be very limited, and high inflation will continue.
At present, many countries have entered a cycle of raising interest rates, and a new round of tightening monetary policy has begun.
"Strictly speaking, stagflation means economic stagnation or even negative growth. However, from the performance of most economies, this has not happened. It can be said that the so-called production stagnation or negative growth on a global scale has not come. Even if the future economic growth rate There may be a slowdown, and the stagflation of the 1970s will not recur." Wang Xiaosong judged.
Chen Fengying, a researcher at the Institute of World Economics at the China Institute of Contemporary International Relations, pointed out to China News Agency that during the "Great Stagflation" period, China and other developing countries had not fully participated in globalization. At that time, the global industrial chain and supply chain had not yet been established, and the relationship between supply and demand was in a state of imbalance. .
In contrast, there are many international institutions and local cooperation mechanisms around the world, and international and regional cooperation and coordination are constantly deepening.
"I think we should analyze it objectively. Risks do exist, but at the same time, everyone is more rational, and the willingness to cooperate is also increasing. There is hope for joint defense against stagflation." Chen Fengying said.
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