Transcription
All roads now lead to higher prices and slower growth.
Thank you so much, managing director, for joining us. It's a very difficult time. The war is continuing. It's claimed something like 3,400 lives in Iran. There's an additional 1,400 lives in the new front in Lebanon. People are dying. But the impact has been enormous on the global economy because of the closure of the Straits of Hormuz.
You were going to give your curtain-raiser speech in January. You raised the estimate for global growth to 3.3%, which would match what you had in '25. What can we expect to see from you on Thursday? But also, you know, in the WEO coming up, obviously, it's going to have a big impact.
Had we not have this war, we would have seen one small upgrade of our growth projections. Instead, all roads now lead to higher prices and slower growth. What we observe is three-fold.
One, the impact is large. Just to compare to COVID time, in COVID time, oil supply shrank by 12%. That was both demand and supply shock, but you know, supply shrank. This time, oil supply has shrunk by 13%. So we have a significant impact from oil, from gas, and from the interruption of supply chains from fertilizers to helium.
Second, the impact is global. Everybody around the planet feels it. Energy importers feel it a lot. Now, even energy exporters, countries in the Gulf, Iraq, they also feel the impact because they can't get their oil to market, because they cannot get gas, oil, they have facilities that are being bombed. You just look at Qatar; they are stating that 17% of their gas production is going to be absent for the next three to five years because of the damage done. According to the International Energy Agency, 72 energy facilities, production, distribution have been damaged. One-third of those damaged more significantly. So even if the war is to stop today, there would be lingering negative impact to the rest of the world.
And three, the impact is asymmetric. And I want to stress this point that when you are a poor, vulnerable country with no energy reserves whatsoever, with no fiscal space to protect your businesses and your people, and that hits you, then, of course, it is a very painful, painful impact.
When we look at the world, so our membership will be here for our spring meetings. It's a very good opportunity to discuss what actions can be taken, how to learn from each other. But when they come, 85% of our members are energy importers. So for many, many, many of those who would be coming, this issue of the impact of the energy shock would be top of mind.
Well, you know, the estimates are that every 10% increase in an oil price sustained increase leads to a 40 basis point increase in inflation and knocks growth down by 2 to 4%. So, what are we looking at here? If these prices, as you're suggesting, some of these facilities won't be repaired quickly, so are we expecting energy prices to stay high for a long time?
So, what we will see it in the outlook that we will present on Tuesday. We are looking at a range of scenarios. The most advantageous for the world economy would be end of hostilities and fairly rapid recovery. Even then, our growth outlook would be revised downwards, and our inflation projections would be revised upwards, but relatively small changes. Now, if this is protracted, we actually have been quoting this rule of thumb.
What happens when energy prices go up and stay up for a longer period of time? The impact on inflation becomes bigger. The impact on growth slowed down as well.
We are also pressing a point that I want to take this interview as an opportunity to stress. We're facing this shock with very limited buffers. Fiscal space in many countries is either very small or non-existent. And yet, we know that the public would ask for help. Help that governments are in a very difficult position to provide. So when you have a negative supply shock, the worst thing you can do is to give people more money because that would only lead to pushing prices and inflation up. And yet, understandably, there would be very vulnerable people that would need to be helped. So that temporary, targeted, well-calibrated support is going to be a massive subject of discussion next week when we gather here.
It reminds me, you know, this is the third shock we've seen, right? We had the Russian invasion of Ukraine. Now we have this shock. You have told people years ago, buckle up. This is going to be a more, you know, there are going to be more shocks. How do you see that now? Do you feel validated that your view has been?
Unfortunately, I wish I wasn't, but yes, we are in a more shock-prone world. We are in a world of elevated uncertainty. Why is that so? Because many things are happening at the same time. We have geopolitical tensions, we have technological advancements that are happening very rapidly, demographic shifts, some countries aging and shrinking, others growing but not having the jobs for people. We have climate shocks. All of this means that after we recover from this shock, we need to keep our eyes open for the next to come.
When we operate in uncertainty, the most important defense we have is to build strong fundamentals, to have good institutions, to have fiscal space, create buffers for the next shock to come. In other words, there are things you cannot influence. Say you're a policymaker from a developing economy, but there are things that you can influence. Get your house in order. Get your policies in good shape. And if last year and the year before I was coming with this message, now I'm going to be shouting to members: Do not allow your own action or inaction to weaken your resilience to this world of uncertainty and more frequent shocks, and work with each other. No country, no country can navigate this world on its own. We need each other.
You issued a joint statement with the International Energy Administration and the World Bank, saying you're standing by to help countries and expressing concern about this largest shock to the global oil market. Have any countries come to you and said, you know what, this looks really bad for us. Can you help us either with technical assistance or any kind of funding requests?
Yeah, we have already been receiving requests for financing. We have a large number of programs because of the previous shocks to which we responded with support. And we are looking into possibly augmenting some of these programs. So next week would be very critical to discuss with members specifically how can we help. So it is going to be a very difficult time for many countries. Now, the war ends, the pain is much less for everybody.
Oh, we can hope. Thank you so much. Really appreciate it. Thank you.