IMF: Unprecedented energy price hikes but fallout will not be as bad as the 1970s

Surging global oil prices will ratchet up the pressure on household energy bills in the coming months

Whitegate oil refinery, Cork. The new assessment by the IMF warns that “soaring natural gas prices are rippling through global energy markets”, hitting factories around the world. 

Elevated levels of energy prices could weigh on global economic growth next year following “an unprecedented” squeeze on gas prices but the fallout will not be as bad as the 1970s, IMF economists have warned.

The warning comes as there appeared also to be no relief for Irish households from surging global oil prices which will ratchet up the pressure on household energy bills in the coming months.

Oil is poised to post the longest stretch of weekly advances since 2015 as the Opec and its allies, a group known as Opec+, only modestly supply the market, Bloomberg has reported.

Crude oil prices rose as much as 1.4% yesterday in New York and are up for a ninth straight week. In the US, president Joe Biden has warned that Americans should expect high fuel prices to continue into next year.

“There’s no real sense in the market that Opec+ is going to be coming forward with any meaningful amount of additional crude oil in the near future,” said John Kilduff, a partner at Again Capital.

The new assessment by the IMF warns that “soaring natural gas prices are rippling through global energy markets”, hitting factories around the world. 

There will be no early let up on the outlook for world economic growth should prices fail to return “to more normal levels” following winter in the northern hemisphere, the IMF said.

“An unprecedented combination of factors is roiling world energy markets, rekindling the memories of the 1970s energy crisis and complicating an already uncertain outlook for inflation and the global economy,” the IMF economists said.

Spot prices for natural gas have more than quadrupled to record levels in Europe and Asia, and the persistence and global dimension of these price spikes are unprecedented.”

However, the IMF sees “a silver lining” for governments and regulators and predicts that conditions won’t be as bad as the 1970s.

“Back then, oil prices quadrupled, directly hitting household and business purchasing power and, eventually, causing a global recession. Nearly a half century later, given the less dominant role that coal and natural gas plays in the world’s economy, energy prices would need to rise much more significantly to cause such a dramatic shock,” the IMF economists said.

Separately, Jack Allen-Reynolds, the senior Europe economist at Capital Economics in London, said that survey indictors suggest that weighed by supply constraints, conditions for European manufacturing are only getting worse.

Citing indicators from Germany and France, Mr Allen-Reynolds said that October readings from purchasing managers’ index were “consistent with our view that economic growth in the eurozone will slow markedly in the fourth quarter, and that inflation will rise further in the coming months”.