MAMOKETE LIJANE: Procyclical monetary policy tightening is likely in 2022
We are underestimating inflation and overestimating growth for the year ahead
Stagflation worries dominate market chatter as inflationary pressures continue to emerge and surge. Stagflation is the worst combination of growth and inflation trends for economies. Under this scenario, inflation rises even as growth slows. This forces procyclical monetary policy tightening, where hikes further dampen an already soggy growth outlook. When economies lack fiscal space, as is now the case in most of the world, GDP growth is left to drift lower, and the outcome is negative for economic welfare, financial conditions and risky assets.
In developed economies the hope and expectation is that inflation will moderate next year as the effect of the Covid crisis fiscal and monetary accommodation abates. However, the risks to the outlook are huge. Policymakers have never put as much fiscal and monetary stimulus into the modern global economy as they did this year and last. They have consequently also never had to unwind it...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.