Global Economy on the Edge amid Tightening Fiscal Conditions

As fiscal conditions find themselves the tightest in two years, experts are raising concerns about what that would mean for the world economy in the longer term. The present conditions have been compounded by rising fuel prices, plunging stocks, and market turbulence stemming from the war between Ukraine and Russia.

According to DZ Bank’s Strategist Rene Albrecht, "if the central banks take their mandates seriously, you will see a further (tightening) in financial conditions", spurred by mounting inflation. He contended, "Economic dynamics will slow down further, inflation will be high nonetheless and you will see second-round effects and then you get a stagflation scenario."

As per Reuters, since the Ukraine-Russia crisis emerged, Goldman Sachs’ financial conditions index (FCI) has climbed by 60 basis points to 100.2 — a level last reported during the onset of the COVID-19 pandemic in March 2020. This spells ill for a global economy already ravaged by surging oil prices and supply chain disruptions caused by increasing sanctions against Russia.