Growth & Inflation: A Double-edged Sword?

The US sub-prime and credit crisis have affected most parts of the world in terms of huge tightening of funds availability, and a slowdown in global economy. However, we have yet to see whether the scenario of recession would happen to these major countries such as US, UK, parts of Europe and other emerging markets. On the other hand, the skyrocketing crude oil prices have caused severe inflation across the globe, the collapse of airline companies, food crisis and severe increase in cost of material!

Vietnam, for instance, has been labeled as the next emerging China, with solid GDP growth , rising real estate property prices and one of the best performing stock market last year! By the mid of 2008, the scenario has reversed completely, with property prices falling as much as 40% since late last year and is expected to continue until the end of the year, stock market crashing by about 55% year-to-date, and a dizzying 25% inflation that could potentially tear down Vietnam's economy!

In the meantime, US is still experiencing jittery economic environment, UK is potentially experiencing a real estate market collapse and financial tightening, China had just experienced a tragic earthquake that it should derail its solid growth going forward!

Back home in Malaysia, the Government is about to announce a new petrol subsidy program in order to reduce its huge budget deficit as a result of the huge subsidy it has to shoulder, despite the huge increase in the price of crude oil. Although the reduction (and ultimately the removal) of petrol subsidy is good to achieve an efficient economy in the long term, this will certainly put a huge dampener to all Malaysians and their consumption! It will also certainly create a spiral effect on inflation on all aspects of consumptions too! If this is not managed carefully, it could ultimately affect economic growth, something the present Government cannot afford to let it happen, given already the political pressure and uncertainties.

Stagflation, perhaps?