Even before the outbreak of the conflict on February 28, marked by a series of American and Israeli strikes against Iran, the American economy was already “close to stagflation”, which links strong inflation to weak growth, according to Mr. Stiglitz.
Several indicators suggested a weak growth in the United States before the war, but this conflict “has plunged us into crisis,” he explained in an interview with AFP at the United Nations headquarters in Geneva.
The conflict in the Middle East has nearly paralyzed traffic in the Strait of Hormuz, a strategic passage for a fifth of global supplies of crude oil and a significant portion of gas, leading to a surge in oil prices.
Global oil prices have jumped by 40 to 50% after Iran blocked this maritime route and targeted energy and maritime sites in retaliation against Israeli-American strikes.
This situation has raised concerns for the global trading system, already weakened by President Trump’s trade policy and the fragmentation of supply chains since Covid-19 and the war in Ukraine.
Joseph Stiglitz, former chief economist of the World Bank and co-winner of the Nobel Prize in Economics in 2001, asserts that the United States remains the most exposed to the risk of stagflation, as during the oil shocks of the 1970s.
“The risk of stagflation seems quite high for the United States,” he said, noting that Trump’s policies had significantly weakened the American economy even before the war broke out.
Mr. Stiglitz lists worrying indicators, such as the expected stagnation of the workforce in 2025 and the rise in unemployment last month.
While a positive economic growth is recorded, he pointed out that it is “unbalanced,” with about a third of it coming from the creation of AI-dedicated data centers.
“The stock market, on the other hand, is doing well as it is dominated by AI and technology companies,” said the Columbia University professor, while “if we look at the rest of the stock market, it is simply lagging behind.”
In the economist’s view, the situation is less critical elsewhere.
While Europe may face inflationary pressures in the energy sector, it benefits from a growth boost due to a significant increase in defense spending, as Washington “clearly indicated that one could not rely on the United States” in this area, he explained.
At the same time, Mr. Stiglitz expects Trump’s protectionist policy to fuel inflation in the United States.
Generally, when a country imposes tariffs, it can expect an appreciation of its exchange rate, as it imports fewer goods, which should lower inflation, the economist explained.
However, in this specific case, he noted, “the dollar has weakened.”
This, according to the economist, is because “Trump has undermined confidence in America and in the dollar.”
“The weakness of the dollar means that instead of reducing inflation through tariffs, we are seeing an increase in inflation. Everything we import costs more in dollars.”
Additionally, there is now inflation linked to the war, as well as increased uncertainty within households and businesses.
These businesses “do not know the amount of tariffs, nor how long this war will last. They do not know how energy prices will evolve,” Stiglitz pointed out.
Businesses, he emphasized, “cannot invest in these conditions.”
