Michael Mussa, a former chief economist at the International Monetary Fund (IMF), has written an assessment (PDF) of the global economy for the Peterson Institute for International Economics in Washington DC. He is forecasting what he calls “a mild case of stagflation”.
He argues that for developed countries the stagflation is likely to be milder than either 1973-6 or 1979-84:
“In the present episode, industrial countries do not have to confront inflation rates that have been allowed to escalate well into double digits, and accordingly, they do not need to pursue aggressive monetary tightenings likely to pitch their economies into deep and prolonged recessions. Rather, we are likely to see a slowing of industrial-country growth to barely more than 1 percent for 2009—well below potential growth, but not a deep recession.”
Mussa is more upbeat about the developing countries where he forecasts aggregrate growth of 5.7% in 2009 compared with 6.4% this year and 7.4% in 2007:
“Economic growth in emerging market countries generally is significantly less dependent on industrial-country growth than it was even a decade ago. Also, the weak economic and financial policies that made many emerging-market countries particularly vulnerable to external economic distress and financial turbulence in the global recessions of the 1970s and 1980s are no longer such widespread and serious problems.”