IMF Says Prolonged Increase in Energy Prices Could Boost Inflation, Lower Growth

IMF says prolonged increase in energy prices could boost inflation, lower growth

IMF Monitors Global Economic Impact of Iran War and Energy Price Surge

By Andrea Shalal and Rodrigo Campos

WASHINGTON, March 19 (Reuters) - The IMF said on Thursday it was closely monitoring the Iran war and the resulting disruptions to energy production, warning that prolonged increases in energy prices could boost inflation and lower growth globally. 

The conflict has disrupted seaborne oil and natural gas shipments, sending Brent crude oil prices over $100 a barrel.

The global lender has not received formal requests for emergency financing but stood ready to help member countries, Julie Kozack, spokesperson for the International Monetary Fund, told reporters. She said IMF officials were engaging with finance ministers and central bankers from member countries, as well as with regional institutions.

IMF to Update Economic Outlook

IMF TO UPDATE OUTLOOK WITH WAR IMPACT

Kozack said the war's impact would depend on its duration, intensity and extent. The IMF will include the war's impact in an updated global economic outlook to be released in mid-April during the IMF-World Bank spring meetings.

Energy and Food Price Risks

“Oil and gas prices, as you know, have increased by more than 50% over the last month, to over $100 a barrel for Brent. In addition, fertilizer shipments have been disrupted, and this, along with transportation disruptions, raise risks that we could see increases in food prices, and those could be substantial, again, depending on the duration and intensity," she said.

With no end in sight almost three weeks into the war, European powers and Japan said on Thursday they would act to stabilize energy markets and join "appropriate efforts" to open the Gulf's energy chokepoint after tit-for-tat strikes on energy plants dramatically escalated the U.S.-Israeli war with Iran.

Inflation and Output Projections

Kozack cited an IMF rule of thumb which held that every 10% increase in energy prices, if sustained for about a year, would result in a 40-basis-point increase in global inflation, as well as a drop in output of 0.1% to 0.2%. If oil prices remain over $100 for a year, that would translate into significant impacts on inflation and global economic output.

Central banks, she said, should keep a careful eye on whether inflation was expanding beyond energy prices and whether inflation expectations were remaining well-anchored.

Higher Volatility in Global Markets

HIGHER VOLATILITY

Global markets have also reacted, with stock prices down and bond yields increasing across a range of countries, including the U.S., Britain and Europe, as well as in emerging and developing countries, she said.

"Volatility has increased. The U.S. dollar has appreciated, and the currencies of a number of emerging economies have weakened," Kozack said.

Regional Economic Impacts

She said the IMF's preliminary assessment was that the war would weaken growth in Gulf Cooperation Council countries, but gave no specifics. Much would depend, she noted, on the countries' ability to resume exports of oil and gas.

Most GCC countries have substantial policy buffers and have implemented reforms to strengthen resilience.

Disruptions in Qatar and Lebanon

Iranian attacks have knocked out 17% of Qatar's liquefied natural gas export capacity, causing an estimated $20 billion in lost annual revenue and threatening supplies to Europe and Asia, QatarEnergy's CEO and state minister for energy affairs told Reuters on Thursday.

Kozack said IMF staff were meeting with Lebanese authorities for an initial assessment of the Iran conflict's impact on that country.

She said the war was compounding a humanitarian crisis in Lebanon and exacerbating the country's fragile macroeconomic situation, as well as damaging infrastructure. Lebanese authorities have shown their commitment to continuing discussions on comprehensive reforms despite the war's impact, she said.

Egypt's Response

The war's impact on Egypt's economy was contained thus far, Kozack said, lauding the country's "proactive, timely and well coordinated" response.

(Reporting by Andrea Shalal and Rodrigo Campos; Editing by Chizu Nomiyama, Rod Nickel)