HOW STAGNATION & STAGFLATION IMPACT FINANCIAL MARKETS - CAPITAL STREET FX

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WHAT IS STAGNATION?

An extended period of slow or no economic development is known as stagnation. Real economic stagnation is defined as yearly real GDP growth of less than 2% and is characterized by prolonged periods of high unemployment and forced part-time work. Stagnation can happen at the macroeconomic level or on a lesser scale in certain businesses or industries. Stagnation can be a result of a long-term structural situation of the economy or a transient condition like a growth recession or transient economic shock.

How Does The Market React During Stagnation? 

A sluggish economy is similar to a stagnant market. It is a market that neither expands nor contracts. Instead, it essentially stays the same. The firms that compete in the market stay the same, and their market valuations do not change.

Because the prices of the assets that investors purchase remain unchanged, a stagnant market might make it challenging for them to profit. Few gains are seen on the stock market, and during periods of stagnation, prices for stocks, mutual funds, and ETFs frequently remain stable or even decline somewhat.

Specific product markets may also experience stagnation, which prevents businesses operating there from experiencing the growth they formerly experienced. This pattern usually develops when markets get more established and there are fewer innovations available. For instance, coffee consumption decreased by 3.2% between 1960 and 1975. Small increases and declines were seen in certain years, but the total shift was minimal.

Competition may increase if markets for particular items become stagnant. Businesses may thrive in booming industries without taking customers from rivals. The only way to expand while markets are flat is to steal clients from other businesses.

WHAT IS STAGFLATION?


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