With unrest in the Middle East pushing oil prices higher, there is one scenario that is not to be taken lightly – the risk of stagflation: higher inflation against a backdrop of slowing global growth.
Ten out of 11 postwar recessions in the US have been preceded by sharp increases in oil prices. Investors are right to wonder whether history will repeat itself and might be the impact on emerging markets.
Oil prices and growth seem positively correlated ie crude and GDP growth tend to rise and fall in tandem. However, uncovering the correct relationship between economic activity and oil prices is difficult.
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