1970s-style stagflation could hit the global economy

The CEO of one of the world’s largest independent financial advisory organizations has warned that households, businesses and investors should prepare for a 1970s-style global stagflation.

Deavere Group’s Nigel Green speaks after private sector output in the euro zone fell to a 10-month low in March, amid growing evidence of the impact the Iran conflict is having on the global economy.

He says: “The figures show that the Iran war is already having a serious impact on the euro zone economy.

“But, as in the 1970s, stagflation could become a widespread global phenomenon, characterized by high inflation, low growth and high unemployment, driven largely by oil price shocks.

“At the time it affected most developed economies, including the US, Canada, Western Europe and Japan, largely ending the post-war economic expansion, and it looks like a threat that could once again loom.”

Recent flash PMI data underlines the turnaround. Euro zone business activity slowed sharply, with the headline index just above contractionary territory at 50.5, down from 51.9 last month.

Cost pressures are rising at the fastest pace in more than three years as energy prices rise and supply chains tighten.

“Oil and gas prices are directly impacting production costs, transportation and ultimately consumer prices. At the same time, demand is weakening.

“This combination is toxic. As inflation rises again, growth is fading. Central banks have very limited space to respond effectively,” explains Deavere’s CEO.

Energy markets have become increasingly tight since tensions over Iran escalated, with crude prices rising and shipping disruptions adding further pressure.

“Europe and Asia remain particularly exposed due to their reliance on imported energy, leaving businesses at risk of continued price volatility.”

He continues: “Investors need to understand that conventional wisdom is breaking down. Bonds may not provide the same protection if inflation remains high. Equities face margin pressure as input costs rise and consumers step back.

“The real value of cash diminishes in an inflationary environment. Remaining stagnant is not a strategy.”

The European Central Bank has already signaled weak growth expectations for 2026, projecting an expansion of less than 1%, while inflation estimates are at risk if energy prices remain high.

Surveys show business confidence is falling and hiring intentions are soft, reinforcing concerns that a recession is taking hold.

“Preparation is essential. Portfolios should be structured for resilience, not optimism. Investors should increase exposure to assets that historically perform in periods of inflation, including commodities, energy producers, and select real assets.

“In terms of equities, the focus should be on sectors with pricing power and strong balance sheets. Companies that are able to pass on higher costs without destroying demand will outperform.”

Currency markets are also likely to reflect differences in economic performance and policy responses.

Risk-sensitive currencies may come under pressure, while volatility in foreign exchange markets is expected to increase.

Nigel Green comments: “Diversification across currencies, geographies, asset classes and sectors becomes more important in this environment. Excessive concentration in any one increases vulnerability.”

Geopolitical risks are now at the center of the economic outlook. Prolonged conflict in the Middle East will remain under pressure on energy markets, while any escalation could lead to further supply disruptions.

Duration matters. A short-term shock can be controlled. Prolonged periods of high energy prices alter the entire economic trajectory.

Policymakers already face difficult compromises. Raising rates to control inflation risks deepening the recession. Cutting rates to support growth risks increasing inflation. “Clearly, no path is straightforward,” says the CEO.

Nigel Green concludes: “Complacency is the biggest risk. Stagflation is not a theoretical scenario; early signs are already visible in the data.

“Investors who act decisively, diversify intelligently, and prioritize real returns over nominal gains will be in the best position to protect and grow their wealth in the times to come.”

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