By Andrei Skvarsky.
It should be the main concern of the European Central Bank (ECB) and the Bank of England (BOE) to prevent “already slowing” economic growth from stopping as this would trigger a bunch of woes, according to the CEO of financial consultancy deVere, Nigel Green.
In criticising eminent economist Nouriel Roubini for insisting in an interview on Bloomberg television on September 18 that the ECB and BOE keep raising interest rates to thwart stagflation, Green argued that short-term stagflation is less of a problem than hindered growth resulting from rate increases.
Stagflation is a situation where slow or zero economic growth is aggravated by inflation.
The ECB raised its main interest rate to a record high of 4 per cent last week, and the Bank of England was expected to put up its own rate to its highest level since early 2008.
Halted growth means a “prohibitive cost of capital” and consequently “a decline in capital formation”, Green said in comments quoted in a de Vere statement.
There would be a decline in entrepreneurial activity, “a slowdown of innovation and a reduction of overall investment”, he warned.
Stalled growth may “create job losses and a stagnant labour market”, he said. “A lack of job opportunities can have a cascading effect, leading to increased unemployment rates, reduced consumer spending, and a decline in overall economic well-being.”
Other potential adversities are increased income inequality, which “could trigger social unrest and decreased social cohesion”, and decreased government revenue.
Hindered growth may require “austerity measures that hurt households and public services”, Green said.
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