Risks and Trends

Stagflation as a major challenge for the global economy

Takeaway 2022-10-25
Inflation and low economic growth are a problem for businesses and governments. An accelerated green transition may help, but it will be more difficult to finance.


Stagflation will increase the extent of global poverty. During the Risks and Trends "How to survive stagflation" panel, Gallina Vincelette, World Bank Country Director for the EU, stressed the social consequences of increasingly slower economic growth and rising costs of living. According to the forecasts she referred to, at the end of the year, the number of people living in extreme poverty in the world may increase to 685 million. Paweł Borys, president of the Polish Development Fund, was more optimistic, as he believes that both Poland and the global economy will avoid long-term stagflation. This will be possible as a result of a flexible and adaptable economy - in Poland, it will be also favoured by the fiscal policy. Borys opted for a cautious approach to combating inflation, as its rapid reduction could lead to a significant increase in unemployment.

The current crisis will be different from the one experienced over 40 years ago. Borys pointed out that analogies to the times of oil shocks and stagflation in the 1970s and 1980s are not well placed. Since then, the structure of the global economy, as well as its institutional environment have significantly changed, for instance, with regard to independent central banking. Jan Piotrowski, the business editor at The Economist mentioned other risks that are faced by today's economies, particularly in developed countries - greater public debt and an unfavourable demographic structure, which generates higher public spending, for example, in the healthcare sector. Julia Patorska, partner associate and economic expert at Deloitte, argued that the ageing society limits the supply of labour, which means that the risk of rising unemployment is now much lower than in the previous century.

Managers are not prepared for a crisis. Piotrowski mentioned a poll conducted by The Economist, which revealed that the CEOs of the largest companies (from the S&P500 index) do not remember the previous stagflation, which may mean that they will be inadequately prepared for the current crisis. Patorska added that in Poland, due to historical factors, this awareness of risks is even lower. She also pointed out that small and medium-sized businesses form a large part of the Polish economy and they are less resistant to crises and less flexible with regard to new challenges.

The climate transition is a challenge for companies. According to Patorska, rising energy prices have motivated some companies to accelerate the green transition, which includes investing in their own renewable energy sources. According to Vincelette, in the long run, such an energy transition may result in lower inflation. At the same time, she also believes that state support policies that freeze energy prices and suspend some mechanisms of climate transition (among other things, by phasing out coal-based energy) will only bring short-term benefits. However, according to Borys, in the current conditions, limiting the increase in energy prices by the state is a good solution, as it helps to anchor inflation expectations and counteracts the setting of high inflation.

Reforms and investments can help stimulate growth. In the efforts to counteract the current crisis, Vincelette recommended a decisive fight against inflation and targeted, temporary (but one that reflects the needs) support of social groups that need such support the most. In her opinion, good targeting of aid is all the more important as countries that emerge from the pandemic do not have the fiscal space to significantly increase spending. According to her, the pace of economic growth may increase as a result of structural reforms. A study conducted by the World Bank shows that Poland could accelerate its potential GDP growth if it increased economic activity (especially among the elderly) and invested in digitisation and green transition.

The fight against the crisis is hindered by higher costs of debt. Borys and Piotrowski referred to the recent problems with debt servicing costs experienced by the UK and indicated that higher debt yields are a new standard to which politicians (but also companies) will have to adapt. Patorska drew attention to the possibility of consolidation of public finances in Poland, for instance, by limiting transfers and support mechanisms targeted at wide groups of consumers (13th and 14th pensions, anti-inflation shields, and energy subsidies). She also called for the unblocking of KPO funding. Boris defended the government's fiscal policy. He stressed that it was justified by social (low pensions in Poland) and economic (protection of businesses) premises, although in his opinion there should be time constraints for state support.

Risk and Trends 2022 partners include Amazon, Deloitte, Grupa Żywiec, IKEA, Janssen, KGHM, Żabka Group, European Council on Foreign Relations and Clean Air Fund.

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Hanna Cichy
Head of Business Desk
Hanna Cichy
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PiS gets 33.7 per cent and KO 31.9 per cent in provincial assembly elections

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The turnout in the parliamentary elections was 51.5 per cent.

In Warsaw, Rafał Trzaskowski (KO) won the election in the first round with 59.8 per cent of the vote. In Kraków, Aleksander Miszalski (KO) came first with 39.4 per cent and local politician Łukasz Gibała came second with 28.4 per cent. In Wrocław, independent Jacek Sutryk came first with 38.8 per cent and Poland 2050's Izabela Bodnar came second with 31.4 per cent. In Gdańsk, independent Aleksandra Dulkiewicz won in the first round with 62.3 per cent. In Katowice, independent Marcin Krupa won in the first round with 66.5 per cent of support, while in Rzeszów, independent Konrad Fijołek won with 45.1 per cent and the second place also went to independent Jacek Strojny with 18.6 per cent.

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