May 6, 2005
Staggering
Is the global economy in for a spell of 70s-style stagflation? Despite some evidence of stag (mostly in Europe), and a mild outbreak of flation (all over), The Economist thinks the risk is low. But that’s not to say all is rosy:
Steering monetary policy when growth is slowing and prices are accelerating is never easy. It is particularly hard in today’s unbalanced world economy, where too much depends on continued spending by American consumers who, in turn, are counting on an unsustainably frothy housing market. At some point, America's heavily indebted consumers will need to cut back spending. And when that happens, those in the rest of the world will have to start spending more to keep the world economy growing. The real risk is that Washington's central bankers will be too worried about stagnation and Frankfurt's too worried about inflation to allow that to happen.
The Economist, of course, has been predicting this for some time.
Posted by Stephen at 12:41 AM in Economics | Permalink | TrackBack (0)
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