Asharq Al-awsat English Middle-east and International News and Opinion from Asharq Al-awsat Newspaper

Inflation Expected to Generate Major Crises Worldwide

Inflation Expected to Generate Major Crises Worldwide

Wednesday, 23 March, 2022 - 07:15
A woman holding her baby shops at a vegetable market amid the coronavirus disease (COVID-19) pandemic in Cairo, Egypt February 25, 2021. REUTERS/Mohamed Abd El Ghany

With the rise of inflation rates all over the world, the value of the foreign exchange reserves were affected in many countries, putting down the economies of emerging states, which mostly depend on imports to cover their daily consumption needs.

Given the economic developments in many emerging countries, including Egypt, experts told Asharq Al-Awsat that five major crises would result from inflation.

Those include the shortage of the US dollar, the dilemma of maintaining growth and not going into deflation (through attempts to address inflation by raising interest rates while attracting direct investments), and managing financial resources in a way that ensures the continued flow of goods and products, even in the most difficult circumstances, by expanding local production and increasing self-sufficiency in basic commodities, in parallel with long-term import contracts.

Another crisis is represented by the challenge to maintain employment rates, while the fifth pertains to the debt-to-GDP ratio.

Dr. Sheriff Henry, an expert on macroeconomics, believes that inflation “is one of the mechanisms that some countries use to export crises.”

He told Asharq Al-Awsat: “We are now in the time of exporting problems, to exploit them at the geopolitical and economic levels… Crises have become like a snowball since January 2020.”

According to Henry, the inflationary policies would lead to the decline in the countries’ foreign exchange reserves and their inability to provide hard currency to maintain the flow of goods to their markets.

He pointed, however, that the Gulf countries have large reserves, hence, “the effects on them will be minimal.”

For his part, Ahmed Moati, Chief Economist and CEO of VI Markets Egypt, noted that the new crisis was represented by employment, pointing to a change in the behavior of employees in the wake of the coronavirus pandemic.

He also highlighted that major central banks have changed rhetoric in their description of the crisis.

While they used to stress that there was no need to worry as inflation would be temporary, now they are increasingly mentioning a “huge and frightening inflation,” according to Moati.

For Ahmed Shukri Rashad, a university professor and economic advisor, inflation is likely to remain high in 2022 in developed and developing countries, to start receding in 2023 in light of contractionary monetary policies and a breakthrough in the supply chain crisis.

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