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Global economy facing bout of stagflation


The global economy is facing a bout of stagflation as soaring prices and chaos in supply chains and the energy market wreak havoc for businesses. 

In reports from the UK and Germany, to China and Taiwan, manufacturers warned they are struggling under the burden of rising costs, shortages and delays. 

Economists are worried about the risk of ‘stagflation’ – which occurs when economies stall at the same time as the cost of living and doing business spirals higher. 

Lower growth generally means slower wage rises and higher unemployment, which would hit households especially hard at a time when prices are climbing. 

Barnaby Martin, a credit strategist at Merrill Lynch International, said: ‘Inflation is suddenly everywhere. 

‘Year to date, tin prices are up 74 per cent, gasoline prices are up 60 per cent, coffee is up 52 per cent, aluminium up 47 per cent, and the list goes on. The energy crisis is already of historic proportions, with gas prices in Italy up 385pc year-to-date.

‘And over 30 per cent of the world is now experiencing inflation in excess of 4 per cent. The age of inflation is ending the age of largesse.’ 

Manufacturing output and new orders in the UK rose in September at their lowest rate since February, according to the closely watched Purchasing Managers’ Index (PMI) which pulled in at a reading of 57.1. Any number above 50 indicates growth. Rob Dobson, a director at IHS Markit, said the UK risked ‘descending towards a bout of stagflation’. 

In the eurozone, manufacturers clocked up their worst month since February. 

Chris Williamson, chief business economist at IHS Markit, said: ‘Supply issues continue to wreak havoc across large swathes of European manufacturing, with delays and shortages being reported at rates not witnessed in almost a quarter of a century and showing no signs of any imminent improvement.’ 

In Taiwan, which is a major hub for worldwide manufacturing, business confidence dipped to a 15-month low, and IHS said: ‘It will be crucial for supply chains to improve in order for operations to fully normalise and for a sustained economic recovery to get under way.’ 

And in China, which was one of the few countries to have regained its pre-pandemic level of economic output, manufacturing activity dropped for the second consecutive month as factories complained of slower transport times and shortages of materials.

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