Whats Wrong With a High-Growth, High-Inflation Economy?
Economic growth can’t be achieved without some inflation. One result of a growing economy is higher wages, when people earn more; they spend more, adding to inflationary pressures. But uncertainty created by high inflation dampens business’ interest in making capital investments. It encourages borrowing, discourages saving and an unexpected redistribution of income and a disinclination to save, cuts the money available for loans, putting more upward pressure on interest rates. High inflation can also produce hoarding: “consumers buy durables to get rid of cash they perceive as less valuable, producing shortages and instigate new waves of inflationary pressure,” explained Shediac. Disadvantages of a high-growth, high-inflation economy can be understood by comparing it to an alternative economy that does a good job of managing inflation. The former is an overheated economic growth model and the latter a sustainable development growth model. GDP growth in the GCC is positive, growing more
