Economists say no global recession yet, but brace for stagflation

Economists say a global recession is not imminent, but will prepare for higher costs and slower growth.

“Stagflation is not followed by a sudden ‘stagflation’,” said Simon Baptist, global chief economist at the Economist Intelligence Unit, referring to an unexpected recession that follows a period of stagflation.

Stagflation, marked by low growth and high inflation, will persist “for at least the next 12 months,” Baptist told CNBC last week as the war in Ukraine and pandemic disruptions continue to wreak havoc on supply chains.

“Commodity prices will start to fall back in the next quarter, but will remain consistently above pre-war levels in Ukraine for the simple reason that many commodity supplies in Russia will be permanently reduced,” he added.

The pandemic, along with the war in Ukraine, has stifled the supply of goods and commodities and upended the efficient distribution of global supply chains, pushing up the prices of everyday items like fuel and food.

But despite the pain for households from rising prices, growth, albeit sluggish, in many parts of the world has been slow and the job market has not collapsed.

Unemployment in many economies has reached its lowest level in decades.

For almost all Asian economies, a recession is unlikely if we are talking about consecutive periods of negative GDP.

Simon Baptist Church

Global Chief Economist, Economist Intelligence Unit

So consumers — despite fears of a repeat of the last global recession sparked by the U.S. subprime mortgage crisis more than a decade ago — don’t have to start preparing for a recession.

“For almost all Asian economies, a recession is unlikely if we’re talking about consecutive periods of negative GDP,” Baptist told CNBC’s Street Signs on Thursday.

Even with the global economy at risk of a recession, many consumers have ample savings and are stocking up on durable household goods, the economist said.

“So in a way, it’s not as bad as the numbers in front of it look,” he said.

AMP Capital chief economist Shane Oliver also doesn’t think a recession is imminent, at least not for the next 18 months.

“The yield curve, or the gap between long-term bond yields and short-term rates, has yet to decisively invert or warn of a recession, and even if it does happen now, the average time to a recession is 18 months,” he said in a note.

He believes that the US and Australia can avoid a deep bear market.

Meanwhile, global central banks are tightening interest rates to fight inflation.

The U.S. central bank earlier this month announced its biggest rate hike in 22 years, raising its benchmark rate by 0.5 percentage point and warning of further hikes.

The Fed releases meeting minutes on Wednesday Indicates that officials are prepared to continue raising interest rates by 50 basis points as they try to reduce inflation.

Aerial view of containers stacked at the Port of Los Angeles on January 19, 2022 in San Pedro, California.

Weizhong Qian | Videos | Getty Images

Last week, the Reserve Bank of New Zealand, which has been tighter than other central banks, raised the cash rate by another half a percentage point to 2 per cent.This is the central bank It raised interest rates for the fifth time in a row and signaled that the cash rate will peak above previous forecasts.

The rate has now risen 1.75 percentage points since the tightening cycle began in October.

“We are very committed to ensuring that real inflation is back within our target range of 1% to 3% and 6.9%, and we are well beyond that…we are determined to get inflation under control,” Governor Adrian Orr said. Adrian Orr) said.

But economists say keeping inflation in check always carries the risk of triggering a recession.

Stagflation is notoriously unmanageable because controlling high prices by raising interest rates can lead to even lower growth.

“The longer inflation stays high, the more investment markets worry that central banks won’t be able to tame it without triggering a recession. As Fed Chair Jerome Powell said, raising inflation to 2 percent will ‘include some pain,’” Oliver said.

But not everyone is worried.

Vicky Redwood, senior economic adviser at Capital Economics, said she believed central banks could bring down inflation without triggering a recession.

Redwood said planned rate hikes in many places, such as Europe, the UK and the US, should be enough to bring inflation back to target.

“[But] If inflation expectations and inflation prove more stubborn than we expect, so interest rates need to rise further, a recession is likely,” she said in a note.

A Volcker-shocked recession might even be justified, she added.

The Volcker shock occurred when Federal Reserve Chairman Paul Volcker raised interest rates to an all-time high in the 1980s in an attempt to end double-digit inflation in the United States