The signs of stagflation include the high risk of consumer goods and services due to high inflation, a reduction in gross domestic product (GDP), and high unemployment. All of these signs are happening now and point to stagflation for 2023. All due to an enormous wave of government spending. Experts have warned that this is a 1970’s style of stagflation crisis this year.
An overwhelming majority of Wall Street investors anticipate that stagflation will pose the biggest risk to the global economy in 2023, continuing to create volatility in the stock market, according to a recent Bank of America pulse survey.
Around 92% of fund managers expect a period of high inflation and low economic growth next year, while 0% are forecasting a Goldilocks scenario, in which the economy avoids a recession and inflation slows.
“Investor sentiment remained uber-bearish,” the survey said. “Investors kept cash levels high at 6.2%, just below last month’s 21-year peak of 6.3%. Additionally, net 77% are calling for a global recession.”
The responses indicate the stock market could be in for another rocky year after central bank tightening, stubbornly high inflation and the Russian war in Ukraine already sparked a multitrillion-dollar carnage.
Why the stagflation now?
Government stimulus, the pandemic and an economic rebound has caused the U.S. to enter into stagflation for 2023. Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.
Goldman Sachs, Deutsche Bank, Bank of America and Wells Fargo are among the Wall Street banks forecasting a downturn this year, although the severity of it remains undetermined.
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