Source: Bloomberg, Unigestion, as of 13.10.2021.
Within the stag + flation equation, only the inflation part has been a real issue until now, and it is showing no signs of easing. The ‘stag’ element remains in question with growth either at or above potential for now, although the deceleration observed since last summer is worrisome.
If economic activity were to settle around current levels, stagflation could be avoided as growth rates would be sufficient to offset the unusually high inflation that we currently face. This would give time for supply bottlenecks to resolve and inflation to fade, slowly but surely. Our Growth Nowcaster has been showing signs of stabilisation for a month at a level that indicates above potential economic activity in developed countries: a positive sign after three months of deceleration from its highs.
Consequently, we remain of the view that much-feared stagflation remains a risk rather than a reality, and that real GDP growth will remain positive in 2022.
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