The US economy was already close to stagflation before the conflict

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,” linking high inflation to low growth, according to Mr. Stiglitz.

Several indicators pointed to a low growth forecast in the United States before the war, but this conflict “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 virtually paralyzed traffic in the Strait of Hormuz, a strategic passage for one-fifth of the world’s crude oil supplies and a significant amount of gas, causing a surge in oil prices.

Global oil prices have soared by 40 to 50% after Iran blocked this maritime route and targeted energy and maritime sites in retaliation for Israeli-American strikes.

This situation has raised concerns for the global trading system, already weakened by President Donald Trump’s trade policy and the fragmentation of supply chains since the Covid-19 pandemic and the war in Ukraine.

Joseph Stiglitz, former chief economist of the World Bank and winner of the 2001 Nobel Prize in Economics, says that the United States remains most at 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 Donald Trump’s policies had significantly weakened the American economy even before the war began.

Mr. Stiglitz listed worrisome indicators, such as the expected stagnation of the workforce in 2025 and the increase in unemployment last month.

Although positive economic growth is being recorded, he pointed out that it is “unbalanced,” with about a third of it coming from the creation of data centers dedicated to artificial intelligence.

“The stock market, on the other hand, is doing well because it is dominated by AI and technology companies,” continued 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 certainly faces inflationary pressures in the energy sector, it benefits from growth stimulation due to a substantial increase in defense spending, after Washington “clearly indicated that the United States could not be relied upon” in this area, he explained.

At the same time, Mr. Stiglitz expects Mr. 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 destroyed 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 is more expensive in dollars.”

In addition to this, there is now inflation related to the war, as well as increased uncertainty among households and businesses.

These individuals “do not know how much tariffs will be, how long this war will last. They do not know how energy prices will evolve,” Mr. Stiglitz emphasized.

Businesses, he insisted, “cannot invest under these conditions.”