Trends and Pattern Heralding the Great Global Stagflation

Trends and Pattern Heralding the Great Global Stagflation

Since the Covid19 pandemic outbreak, the global economy has been agitated and shaped by an array of social, socioeconomic and political forces which require an ability to quickly adapt to the new normal. Following the global supply chain disruption which brought about operational frictions and monetary loss of most businesses that had yet to fully integrate digital technology, the great labour attrition which became rampant at least in greater parts of the United States and some parts of Europe stemmed from an attitudinal change to work due to a short period of remote working. The ensuing campaign of the hybrid work rule is a way of gradually adjusting to the new normal.

In early 2021 when the world had barely begun to recover from the Covid shock, a sharp increase in global demand for food and non-food items met with shortages due to the global supply chain that was still reviving slowly. Consequently, food price and general price inflation increased considerably later in the year while unemployment remained high in many parts of the world.

Thus, in June 2022, the World Bank slashed its global economic growth forecast to 2.9 percent from 5.7 in 2021, warning that the world economy is vulnerable to a period of intense stagflation reminiscent of the 1970s.

Registration for Tekedia Mini-MBA (Feb 6 – May 6 2023) has startedClick and register here. Cost is N60,000 or $140 for the 12-week program if you register by Dec 9, 2022. Beat the early bird for free books, discounts and other bonuses. 

Stagflation which stems from the fusion of two words, “stagnation” and “inflation” is defined as an economic state where there is fixation in growth level due to increasing unemployment and inflation. The term was coined by Iain Macleod, a British politician, in 1965.

Earlier, the concept had been challenged by many economists who had doubted that unemployment and inflation could coexist since both are mutually exclusive — for instance, price levels are usually driven by an economy’s level of demand, and unemployment generally falls when demand booms. However, certain events later emanated in the US economy in the 1970s that underscored the possibility of Stagflation.

According to historical accounts by analysts, in 1971, President Richard Nixon’s aggressive position to the US balance of payment pressure by taking the US off the gold standard allowed the value to float. This led to the subsequent fall of the US Dollars and aggravated inflationary pressures locally. In 1973, the placement of embargo on the US and other nations that supported Israel in the Yom Kippur war by the Arab members of the OPEC led to a surge in oil prices. Due to supply shock, the US businesses passed along those costs and went out of production which led to inflation by making goods scarcer while unemployment also increased. Also, the US Federal Reserve’s decision to raise interest rates led to a spike in the misery index from 19.9 percent in 1975 to 22 percent in 1980.

The ongoing Russian-Ukrainian war has really aggravated fears of impending stagflation globally. Russia’s invasion of the Ukrainian’s territory has triggered a global shortage in cereal and gas supply and consequently, higher food and energy prices worldwide. Analysts have also linked the increase in price of bread, wheat and cereals amidst double digit inflation reported in Nigeria to this territorial warfare between Russia and Ukraine. The war was said to have compounded the Covid pandemic induced damage to the global economy which according to the World Bank may be a “protracted feeble growth and elevated inflation”.

The increasing global inflation accounts for a mass layoff across industries. In another Tekedia’s article, it was reported that as of July 2022, more than 30,000 tech workers were laid off by big tech companies including Microsoft, Tesla, Twitter as well as Fintech and Crypto-exchange platforms due to increasing inflation and decrease in users of those platforms.

Many Governments across economies had begun to increase interest rates to address the skyrocketing global inflation. Analysts noted that the decision by fed and the Bank of England to begin aggressive interest rate hikes and by the European Central Bank to prepare to raise interest also added to the Stagflation worries. Many believed that the odds of Stagflation were higher in the European Union and the United Kingdom than in the United States where economic recovery from the pandemic had been stronger.

Share this post

Post Comment