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Potential Stagflation Risks Pose A Threat To The US Economy

stagflation risks
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EDITOR'S NOTE: As the old saying goes, “the proof is in the pudding.” On Wall Street, that proof is dished up quarterly in the form of corporate revenue, earnings, and guidance. If all three match or beat analyst estimates, then the prospects for a given company, industry, or sector are generally deemed bullish. That’s certainly the case for Maersk, one of the world’s largest ocean and freight transportation companies; that is, except for the guidance part, which comes with a stark warning of global risks in the second half of 2022. Unlike the corporate custom of providing (or declining) guidance, many economic reports aren’t designed to provide guidance. Inflation indicators like the CPI, PPI, and PCE provide a backward-looking perspective. What the average American doesn’t see are the potential stagflation risks building up in the economy.  The article below explains the Maersk guidance, the rationale behind the outlook, and the factors we should all look out for in the coming months.

The world's largest ocean and inland freight transportation company warns about gathering storm clouds above the global economy as potential stagflation risks emerge and shuttering of China's factories because of the COVID-19 outbreak even as it reported record profits for the first quarter. 

Maersk's chief executive Søren Skou was quoted by Financial Times as saying the second quarter is expected to be in line with the first quarter, which allowed the shipper to record the highest profits in its 114-year history. 

However, Skou delivered this warning:

"We are assuming a slowdown in the second half, a normalization. The visibility is quite low. Mainly we see risks building up in the economy, in China with the Covid-19 policy, where they use these very hard lockdowns, some downgrades due to a very high oil price."

Maersk transports about 17% of containerized volume worldwide and is seen as a global trade bellwether by some. Last week it downgraded its growth forecast this year. 

Skou said the second half could be filled with global turmoil. 

The world bank slashed its forecast for global economic expansion this year, blaming Russia's invasion of Ukraine for their outlook shift. It cut its estimate for global growth in 2022 to 3.2% from a January prediction of 4.1% (which compares with a 5.7% expansion in 2021).

With global inflation continuing to soar and growth severely waning, it's created stagflation anxiety:

"We clearly see inflation, and I don't think it's temporary. 

"There are quite a number of factors that suggest we will see less growth in the second half and into next year," Skou said, indicating a drop in Chinese export orders and slumping confidence and business confidence in the US and Europe. 

Source: Zero Hedge

He also noted the ongoing debacle in China. He said Maersk recorded negative volumes due to Shanghai's "mind-blowing" month and a half lockdown. 

Skou's comments may only suggest the second half of the year could be filled with turmoil, which comes at the worst possible time as global central banks embark on an aggressive tightening spree. 

Originally published on Zero Hedge.

 

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