CASE Policy Briefs, economic stagnation, Financial sector, Global/Multiregional, inflation

Recent Turmoil in Financial Markets - Sources and Systemic Remedies

A growing number of indicators suggest that the U.S. economy is heading for ‘stagflation’, i.e. a period of economic stagnation coupled with inflation. Personal consumption expenditures, which comprise almost three-quarters of gross domestic product (GDP), are expected to recede, as implied by sharply declining indexes based on consumer spending plans.

The current economic slowdown can only partially be attributed to longterm cyclical corrections. Without doubt, the proliferation of economic pessimism stems mainly from the severe liquidity and market risk crises in the financial system.