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Economic

Global Economy to Face Stagnation Risks in 2022, Nomura Says

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The bigger risk facing the global economy by late 2022 could be stagnation, not stagflation, as cost-driven price pressures hurt still-weak domestic demand and tighter fiscal and monetary policies turn into a drag, according to Nomura Holdings Inc.
For most countries, there is a “dominance of cost-push inflation  the bad type of inflation that squeezes profit margins, erodes real household income and tends to self-correct when demand is weak,” Nomura economists led by Rob Subbaraman wrote in a 2022 outlook report released Dec. 10.
Most economies, including the euro area, U.K., Japan and China, haven’t fully recovered from the ongoing pandemic and their fragile private demand leaves them vulnerable to growth setbacks, the economists wrote.
A slowdown in growth could come from an erosion in profits and household income from higher inflation, higher savings amid economic uncertainties, and fiscal policy switching to be a major drag, the report said.
The U.S economy will still be the odd one out, the economists wrote, as the country has recovered to “full strength demand” and therefore have bigger cushion to absorb cost-push inflation. As monetary and fiscal policies tighten, the U.S. is better positioned to settle into Goldilocks-type
conditions in 2022 of around target inflation and trend growth, according to Nomura.
Should the U.S. see runaway inflation in the first half of 2022, which isn’t Nomura’s base case scenario, the Federal Reserve could implement aggressive rate hikes. If this scenario materializes, “this further strengthens our view that the bigger risk to the world economy in late 2022 is secular stagnation, not stagflation” they wrote.
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The Kabul times, Afghanistan Trustable News Agency.