Middle East war fears of stagflation are rapidly dampening investor sentiment towards junk-rated companies. The spread between BB+ and CCC-rated corporate bonds has widened to 6.4 percentage points, a 14-month high, as rising oil prices and economic slowdown threaten highly indebted firms.
Aleksey Zabotkin, Deputy Chairman of the Bank of Russia, stated that without raising the key interest rate, Russia's economy could face stagflation in 2025. He justified the tight monetary policy, arguing that high inflation would be a greater constraint on businesses than a prolonged period of high rates.
Economist Holger Schmieding warns the European Central Bank would err by hiking interest rates to combat inflation, risking a recession in Europe's weakened "big three" economies. He suggests demand destruction will naturally curb inflation, negating the need for aggressive tightening.
The Iran war is causing stagflation and starvation due to reduced oil and fertilizer supplies, with potential for a global economic shock. Rising bond yields could pop the AI bubble, and petrol prices may reach $10 a gallon this summer.
La Commission européenne prévoit une stagflation en Europe en 2026, avec une croissance atone et une inflation élevée, exacerbée par le conflit au Moyen-Orient. Les prévisions de PIB sont revues à la baisse.
The EU will lower its economic growth forecast and raise inflation predictions due to the "stagflationary shock" from the Iran war, according to Economy Commissioner Valdis Dombrovskis. He noted limited policy action options and urged targeted support, not increased fossil fuel demand.
US inflation rose to 3.8% in April, the highest since May 2023, with wholesale prices also seeing their largest annual increase since 2022. Traders predict over a 65% chance of inflation reaching at least 4.5% by year-end, far exceeding consensus forecasts of 2.8%.
Disappointing growth and strong inflation numbers for April hint at worse to come.
Bank expects its base case for GDP growth to be 0.5% this year, lower than IMF’s 0.8% prediction for BritainBusiness live – latest updatesLloyds has warned that the economic fallout from the Middle East conflict could cost it £151m amid rising unemployment and inflation and a slowdown in the housing market.The FTSE 100 group, whose brands include Lloyds Bank, Halifax and Bank of Scotland, issued a downbeat economic forecast that it said reflects the stagflationary consequences – the double hit of rising inflation at the same time as slower economic growth – for the UK and global economies. Continue reading...
The European Central Bank and Bank of England are both expected to keep interest rates on hold at their meetings Thursday, resisting market expectations for hikes amid stagflation fears. The ECB will maintain its key rate at 2% while the BOE holds at 3.75%, as inflation stands at 2.5% in the euro zone and 3.3% in the UK—both above the 2% target. Economists say policymakers will look through inflation spikes caused by the Iran conflict, prioritizing growth concerns over price pressures.
Billionaire hedge fund manager Ray Dalio says the US has entered a stagflationary period for the first time in decades, citing stagnant growth, high inflation, and the Iran war's impact on energy prices. Despite Fed Chair Jerome Powell's insistence the term overstates the crisis, Dalio warned against cutting interest rates, saying it would damage credibility. GDP grew just 0.5% in Q4 2025 while inflation reached 3.3% in March.
Billionaire investor Ray Dalio warns the US has entered a stagflationary environment with persistent inflation and slowing growth. He advises against rate cuts if Kevin Warsh becomes Fed chair, saying such a move would damage central bank credibility. Dalio recommends a 5% to 15% allocation to gold as a diversifier.
S&P Global's composite PMI fell to 48.6 in April from 50.7 in March, unexpected contraction breaking 15 months of growth. Companies raised prices at the fastest rate in 37 months while input costs surged to levels not seen since end of 2022. The stagflation scenario poses acute dilemma for ECB, which meets April 30.
Central bankers and finance ministers told CNBC that the war involving Iran could raise inflation, slow growth and threaten energy security. They said uncertainty over the Strait of Hormuz and the conflict’s duration is making policymaking harder.
