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Stagflation Is the Dreaded Word No One Dared Speak at Davos

A combination of slowing growth and persistent price increases would be the worst possible outcome for stocks and bonds.

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Illustration: George Wylesol for Bloomberg Businessweek

The outlook among global leaders at the World Economic Forum in Davos, Switzerland, in mid-January ranged from cautiously optimistic to unapologetically positive. Attendees interviewed by Bloomberg News during the proceedings talked about the reopening of China, the warmer-than-expected winter, which has helped keep energy prices down, and the expected surge in other commodity prices that hasn’t occurred. Yes, there was talk of catastrophic tail risks, but there was relatively little said about the most obvious threat to global well-being: stagflation.

But the positive developments lightening everyone’s mood are making stagflation—slowing growth combined with rising prices—look increasingly likely. And that would be the worst-case outcome for all financial assets, says Nicolai Tangen, chief executive officer of the $1.3 trillion Norwegian sovereign wealth fund. “The problem in that kind of scenario is you’re not going to be making money anywhere,” said Tangen, who runs Norges Bank Investment Management. “The big concern this year is what will happen with global inflation when China kicks in.”