Energy transition to be inflationary and reduce potential growth – Natixis
In the opinion of analysts at Natixis, it is reasonable to think that the energy transition will lead to lower growth and higher inflation, and therefore to stagflation.
Why the energy transition will be stagflationary
“The energy transition will curb potential growth since it implies that very large investments will not lead to additional production, but will only replace capital that must be destroyed; there is indeed a loss of potential production compared to a situation where investment would generate additional available capital unless all the additional investment is taken from consumption, which is unlikely.”
“The energy transition will increase inflation, first because the cost of producing renewable energy is higher than the cost of producing thermal energy; and second because amortised capital is replaced by new unamortised capital.”
“Stagflation is the most complicated for central banks, as they do not know whether they should react to inflation or to sluggish growth. This is all the more the case if fiscal policy becomes more expansionary in response to weak growth, which makes it even more difficult to implement an interest rate hike. We have to go back to the 1970s and 80s to find stagflation in the OECD countries, and then monetary policies were restrictive, but this will probably not be the case this time around.”
Author
FXStreet Insights Team
FXStreet
The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.
