Originally published as “The Specter of Stagflation” on NASBP by Dodge Chief Economist Eric Gaus
Economic uncertainty continues to shape the construction landscape. While the baseline outlook still anticipates modest growth, the risk of stagflation — slowing growth paired with elevated inflation — remains real.
Here are the five key takeaways for construction and surety professionals to keep on their radar:
- Stagflation is not the base case — but it’s a credible risk.
Current inflation rates have proven sticky, and GDP growth is softening. While Dodge does not forecast stagflation as the most likely scenario, the risk has grown enough that contractors, sureties, and project owners should be monitoring early indicators closely.
- A stagflation scenario would slow private construction activity.
Tighter credit conditions, rising costs, and reduced consumer demand would likely weigh most heavily on residential and private commercial projects, delaying starts and compressing margins.
- Institutional and public work could remain more resilient.
Government-funded infrastructure programs may provide a buffer. These projects often move forward even in challenging economic climates, helping stabilize parts of the industry.
- Surety markets would see increased exposure.
In a low-growth, high-inflation environment, contractor defaults typically rise, making accurate risk assessments and portfolio diversification more critical for surety providers.
- Proactive planning is the best defense.
Contractors and sureties that monitor cost pressures, diversify across project types, and build flexibility into contracts will be better positioned to weather potential economic shocks.
Why It Matters
Even if stagflation doesn’t materialize, planning for it strengthens operational resilience. For construction stakeholders, that means sharpening risk management strategies, keeping an eye on inflation indicators, and understanding how shifting macroeconomic conditions ripple through the project pipeline.
Read the original article on NASBP: The Specter of Stagflation