ISLAMABAD (APP) – The world is set to witness a new and rare economic phenomenon called `transflation’ in 2015 in the wake of tumbling oil prices, forecast economists.
The steep plunge in oil prices by more than 50 per cent has led the global economy to a scenario of rising gross domestic product, or GDP, growth and falling prices or inflation – a favourable environment for all risk-asset classes, they say, Khaleej Times reported.
“In other words, it is a situation of deflationary expansion where inflation/prices fall and GDP expands simultaneously,” economists at Cr?dit Agricole Private Banking explained.
Globally, this phenomenon has not happened to any noticeable degree in the 20th and 21st centuries, but in the 1800s deflationary expansion occurred during long periods, Dr Marie Owens Thomsen, chief economist, Cr?dit Agricole, said at a roundtable discussion held in Dubai.
The looming `transflation’ will entail higher growth and lower inflation/prices in oil importing countries but pose unique challenges to oil exporting regions.
According to Dr Thomsen, the current state of deflationary expansion has been rare since the 1800s; so rare, in fact, that it does not have a name of its own.
“We call it `transflation’ in order to describe the transformational events that allow GDP to expand and prices to fall simultaneously, and it is the best thing that has happened to the world economy since sliced bread, so to speak.” To sum up, 2015 is likely to see an additional half point of GDP growth in the world, taking it to four per cent using PPP – (purchasing power parity) based weights.
