Daily Courier – The International Monetary Fund (IMF) has said that the rise in oil prices may lead to high inflation and slow growth across the world.
The IMF which disclosed this in a new report entitled, ‘Lower oil reliance insulates the world from 1970s-style crude shock,’ said that high inflation and slow growth experienced in a similar circumstance have fueled concerns about a possible repeat.
Making reference to the war in Ukraine and that sanctions on Russia are causing substantial economic spillovers, notably for energy, the IMF stated that the rising oil prices may echo the 1970s when geopolitical tensions caused fossil fuel prices to spike.
“For some, rising oil prices may echo the 1970s when geopolitical tensions also caused fossil fuel prices to spike.
“Memories of the high inflation and slow growth that followed—known as stagflation—have fueled concerns about a possible repeat. Importantly, though, times have changed”, the Washington-based lender said.
It explained that oil price increases have been contained by spare production capacity in some countries and petroleum reserves in others, adding that the global oil benchmark had risen to a seven-year high of about $100 before the Ukraine crisis pushed it above $130.
“Central banks, too, have changed since the 1970s. More are independent today, and the credibility of monetary policy has broadly strengthened over the intervening decades.
“We expect global growth to be close to the pre-pandemic average of 3.5 percent, even after our April World Economic Outlook lowered projections, but it still could slow more than forecast, and inflation could turn out higher than expected.
“This may be most salient for parts of Europe, given their relatively higher reliance on Russian energy imports,” the IMF stated.