The outlook of world leaders at the World Economic Forum in Davos, Switzerland in mid-January ranged from cautiously optimistic to decidedly positive. Participants polled by Bloomberg News during the proceedings spoke about China’s reopening, the warmer-than-expected winter that helped keep energy prices low, and the expected rise in other commodity prices that didn’t materialize. Yes, there has been talk of catastrophic tail risks, but relatively little has been said about the most obvious threat to global well-being: stagflation.
But the positive developments brightening everyone’s spirits make stagflation – slowing growth combined with rising prices – look increasingly likely. And that would be the worst-case outcome for any financial asset, says Nicolai Tangen, chief executive officer of Norway’s $1.3 trillion sovereign wealth fund. “The problem with such a scenario is that you’re not going to make any money anywhere,” said Tangen, who heads Norges Bank Investment Management. “The big concern this year is what will happen to global inflation when China kicks in.”
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