The era of Goldilocks Economy— not too hot, not too cold, but just right—used to describe the benign US economy during the mid- and late 1990s, seems to have come to an end. `Stagflation', a deadly combination of slow growth and high inflation, has now emerged as a possible threat to the global economy. In fact, the world economy has already entered into a period of financial turmoil, slow growth and heightening inflationary pressures—a harsh reality that poses uphill policy challenges to the international community. The persistent rise in the price of oil and commodities has battered global industries severely and deepened fears of a worldwide inflationary spiral—which has already provoked riots across Asia—as producers pass on higher costs to manufacturers and consumers. Added to it, the mighty US economy, which is going through a rough patch of declining growth with bouts of inflation and unemployment, is severely hampering the global output, thereby debunking the decoupling theory.
And now, the global economy is clearly slowing, as the West is facing an adverse economic consequence of a major credit crunch and the Emerging Market (EM) economies are combating the threat of rising inflation. Apart from the US, a host of other countries, such as the UK, Japan, Spain, Portugal, Italy and the Baltics, including the euro area, are experiencing recessions of varying magnitudes. Also, the forces of 3Fs—Fuel, Food and Financial speculators—are doing no good to the inflation expectations, particularly in the developing nations. The mounting inflation, coupled with signs of slowdown in the much fancied BRIC economies, has virtually poured water on the hopes of steady world growth, at least in the short-run. |
