A 51-year era for the world economy is dying a slow death

According to Swiss Re chief economist Jerome Hegeli, we are in a crisis that is unfolding in slow motion

Swiss Re Chief Economist Jerome Hegeli has been thinking about August 15, 1971 a lot lately.

On that day, Hegeli says, US President Richard Nixon interrupted the popular US soap opera Bonanza to announce the end of the dollar’s parity with gold, in turn endorsing more than half a century of globalization, flexible interest rates, open markets and slowdown of inflation, which caused rumors of her death, writes Bloomberg.

The date stands out because it is the beginning of an era that is now ending, says Hegeli, who has also worked for the Swiss National Bank, including as its representative on the executive board of the International Monetary Fund.

“We are in a crisis” that is unfolding “in slow motion” thanks to food, energy and supply chain disruptions, he said in an interview. “Crisis times are needed for the change in the macro regime” that is happening now, he adds.

Crisis times are needed for the change in the macro regime.

Jerome Hegel

Chief Economist of Swiss Re

The new system that emerges should bear the “spirit of Bretton Woods” in its emphasis on cooperation among the world’s monetary policymakers, referring to the 1944 conference at which 44 countries laid the foundations for the postwar dollar standard. The US promised to convert dollars into gold at a rate of $35 per troy ounce, a system that was later ended by Nixon. Any new order that emerges thereafter must better address the needs and opportunities of emerging markets alongside those of more advanced economies, Hegeli says.

A starting point for central bankers — busy recalibrating inflation forecasts amid Russia’s invasion of Ukraine — is to meet their price stability mandate, the economist says.

The focus should be on facilitating long-term investment – alongside the recovery of the ‘real economy’, with tangible assets such as those in infrastructure gaining traction after 15 years of financial asset price inflation. In that sense, Hegeli praised Singapore for its decision this month to start offering green bonds, which he said are similar in other countries, as governments want more private capital to go into infrastructure projects.

And while the former central banker is relatively optimistic about embracing this new era of the global economy and the ability of monetary authorities to deliver on their mandate — a “back-to-roots” approach that focuses on price stability — his short-term outlook is far more bleak. – gloomy.

Swiss Re’s forecasts for price growth are above consensus. Hegeli and his team expect higher inflation lasting longer. In the US, consumer price inflation is expected to moderate to around 3% over the next decade.

That will mean an “inflationary recession” — higher prices while economic growth shrinks — around the world, though not like the stagflation of the 1970s, he says. And while the recession is expected to be “rather softened” in the US, a much more serious downturn is looming in Europe, where natural gas prices are significantly inflated.

The article is in bulgaria

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