Rising GDP means higher inflation and interest rates

Below is an extract from this week’s IMF economic forecast report showing World GDP is set to rise 21% over the next 5 years.

This is an average of 4.2%, which is a good 35% higher than the post GFC GDP growth average from 2013-17.

So, how can the world’s economy grow by one-fifth in short period of time, without any material inflationary pressures when companies are telling us they see rising costs, constraint in capacity and the need to increase selling prices?

We will see a huge amount demand for production output constrained by production supply.

3 into 1, just won’t fit.

I think central banks in the ‘developed world’ are behind the curve.

Russia, Mexico, Brazil are commodity producing and commodity sensitive economies. Their central banks have been raising rates citing reasons to curb the rising cost of living.

Inflation is a tax that the ‘poor’ can’t afford to pay.

Their citizens are amongst the least indebted in terms of personal debt to GDP, so rising interest rates doesn’t threaten the value of their real estate and financial asset values unlike the sky-high indebted citizens of Australia, Canada, the U.S. and the U.K.

(see the other image below)

Interestingly, South Korea, Norway and New Zealand are the first of the developed world economies to raise interest rates. Their central bank reasons were to curb their respective country’s soaring household debt and home prices. Not the cost of living……

October 13, 2021

by Rob Zdravevski

rob@karriasset.com.au

#economy #interestrates #growth #realestate

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