Risk of stagflation threatens post-pandemic recovery – Economic analysis


Stagflation is a “double whammy” of a situation in which economic growth stagnates and at the same time inflation and unemployment rates soar. In 1970, the world was shocked by the stagflation that occurred when Middle Eastern countries reduced their oil exports to the economies supporting Israel, triggering soaring prices and a global economic slowdown.

Since then, governments have thought they were coming out of stagflation, but recently the pandemic and the war in Ukraine have increased the risk of stagflation. As the economic growth rate halves in 2022, with global inflation and unemployment rates rising dramatically, this risk is now more real than it has been in decades. But how serious is it likely to be?

Growing risk of stagflation

Countries around the world were struggling to recover from the pandemic-related recession when the war in Ukraine created new hurdles, jeopardizing the global economy and job markets. According to a recent report published by the World Bank, in 2022 the global economic growth rate is expected to halve, falling to 2.9% from the 5.7% recorded last year. The same is true for advanced countries, where the growth rate is expected to fall to 2.6% from 5.1% in 2021. For example, in the EU, soaring energy prices, coupled with adverse financial conditions and trade disruptions, reduced the economic growth rate to 2.5% from 5.4% last year. Emerging markets and developing countries are also expected to experience a significant decline, from a growth rate of 6.6% in 2021 to 3.4% in 2022.

However, the fall in global economic development is not the only negative effect of the multiple crises. In almost every country in the world, the global rate of consumer price inflation has increased significantly in 2022, with median global consumer price inflation rising to 7.8% in April this year.

In emerging markets and developing countries, the headline inflation rate exceeded 9.4%, a record high since the 2008 financial crisis. High-income countries recorded an inflation rate above 6.9 %, the highest since 1982.

Rising inflation and declining economic growth rates, coupled with unstable financial and economic conditions, are increasing the risk of stagflation in many countries. The kind of stagflation that poses a long-term threat to governments is the heady combination of high unemployment and high inflation. The risk of stagflation is currently exceptionally high in low- and middle-income countries.

Global Employment Trends

World Bank President David Malpass, commenting on current economic conditions, notes: “The war in Ukraine, lockdowns in China, supply chain disruptions and the risk of stagflation are hammering growth. For many countries, recession will be difficult to avoid.Unpleasant economic conditions, however, not only rattle the economic situation of countries, but also ‘bend’ labor markets, leaving millions out of work.

According to the International Labor Organization (ILO), the global unemployment rate is expected to reach 5.9% in 2022 and fall to 5.7% in 2023, which is still higher than the pre-pandemic level of 5.4% recorded. in 2019. countries recorded an unemployment rate of 6% in 2022 compared to 4.9% in 2019. Lower middle income countries fell from an unemployment rate of 5.1% in 2019 to 5, 6% in 2022, while upper-middle-income countries reached 6.6% from 6% in 2019. High-income countries also saw a slight increase, reaching an unemployment rate of 4.9% this year, compared to 4.8% in 2019.


In terms of the number of hours worked, while countries made significant progress in the last quarter of 2021, the previous progress reversed following the Russian invasion of Ukraine in the first quarter of 2022. At the beginning of this year , the overall number of hours worked was 3.8% below the level of the fourth quarter of 2019, equivalent to a shortfall of 112 million full-time positions. According to ILO forecasts, the decline should continue in the second quarter of 2022. This significant slowdown is jeopardizing the recovery of many countries.

Evolution of global hours worked compared to the 4th quarter of 2019 (percentage)

(Hours worked are adjusted for the population aged 15-64)


Source: ILOSTAT database, ILO modeled estimates.

At the same time, however, it is worth mentioning that advanced countries have seen a significant recovery in employment since last year – unlike developing economies. The strong recovery of the labor market in advanced countries is partly explained by the existing tightness in the labor market, i.e. a situation in which the increase in the number of job offers is greater to that of the number of job seekers.

Change in hours worked compared to Q4 2019

by country income group (percentage)


Source: ILOSTAT database, ILO modeled estimates.

While the current state of global economies is difficult, economists believe rising inflation will be less disruptive than that experienced in 1970. First, in 1970 countries were more energy intensive; therefore, the oil supply shock has hit economies hard. Second, central banks are now focusing more on inflation targeting, often with caps of 2-3%. For example, the United States and the EU have a medium-term inflation target of 2%. Economists believe that if prices soar all over the world, causing labor markets to weaken, the situation should still be less painful than the shock of 1970. Let’s hope they’re right.

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