(Trinidad Guardian) The International Monetary Fund (IMF) is predicting a mixed return for countries like Trinidad and Tobago, which are reliant on the energy sector.
In the latest World Economic Report, released on Tuesday during the IMF’s annual meeting in Washington DC, the IMF said provided an outlook for energy prices in which it predicted that oil prices are expected experience a small increase, while natural gas prices are expected to fall in 2024.
The report stated, “Oil prices are expected to rise by 0.9 per cent in 2024 to about US$81 a barrel as production cuts by OPEC+ (Organization of the Petroleum Exporting Countries plus selected non-member countries, including Russia), sustained global oil demand growth, and geopolitical tensions in the Middle East offset strong non-OPEC+ supply growth.
“Overall, however, prices for fuel commodities are projected to fall on average by 3.8 per cent—owing to declines in prices of natural gas (by 16.4 per cent) and coal (by 18.0 per cent) as they come off their 2022 peaks—but less rapidly than assumed in April.”
This suggestion has largely supported the statements made by Prime Minister Dr Keith Rowley and Finance Minister Colm Imbert that the next two to three years may be challenging, given Trinidad and Tobago’s economic reliance on natural gas revenues.
Slower global growth
Despite a faster-than-expected period of recovery after the COVID-19 pandemic, the global projection of low growth for the short to medium term has members of the International Monetary Fund (IMF) concerned.
It was revealed that while generally inflation had been on the decline there continued to be rises in food prices, mainly due to external factors.
The report said, “Since the beginning of 2024, signs that cyclical imbalances are being gradually reabsorbed have helped bring inflation rates across countries closer together. Disinflation has continued broadly as expected but did show signs of slowing in the first half of the year, suggesting potential bumps on the road to price stability (July 2024 World Economic Outlook Update). The persistence in core inflation has been driven primarily by services price inflation. “
The report continued, “At 4.2 per cent, core services price inflation is about 50 per cent higher than before the pandemic in major advanced and emerging market economies (excluding the US). This contrasts with core goods price inflation, which has declined all the way to zero. Recent increases in shipping rates, especially for routes to and from China, have put upward pressure on goods prices. However, this source of upward pressure has been mitigated so far by declining prices for exports from China”
Pierre-Olivier Gourinchas, economic counsellor and director of the Research Department at the IMF, explained that in many cases this surge in prices was as a result of geopolitical issues.
“The things that we are worried about, the things that we’re looking at closely. First of course, geopolitical risks, whether it’s increase in fragmentation tariffs, whether it’s tensions in the Middle East that would result in escalation of commodity prices, oil prices, shipping costs. That’s something that we are concerned about.
“Second, now central banks are starting to ease the policy rate in many parts of the world. They could do it, but maybe the pace could be wrong. They could stay higher too long, and then economic activity would start their pay. So we have a downside risk also here, related to how appropriate this is going to be the path of disinflation and easing policy rates,” said Gourinchas, in a press briefing on the report on day 1 of the annual meeting on Monday.
Speaking about the global economy, Gourinchas expressed concern about the slow rate of growth after, in most cases, a better-than-expected bounce back after the pandemic.
“Yes, growth has been resilient, 3.2 per cent but we are expecting growth in the medium term, ” he said, “When you look further out, when we look at 2029 we’re expecting growth to remain at about the same level, maybe a tad smaller, about 3.1 per cent and 3.1 per cent is not a good number for us.”
Gourinchas said those figures compared unfavourably to previous decades where there had been promising development, suggesting that many economies could find themselves stalled.
“If you look at the average growth rate for the first two decades of the century, it was closer to 3.8 per cent. So a reduction to 3.1 per cent suggests that the global economy is not growing as rapidly, and that’s going to be an issue for funding needed expenses, whether it’s related to climate change, whether it’s related to development goals, etc, so it’s going to constrain a lot of things to have lower medium-term growth,” he said.
Gourinchas said this issue would have to be addressed with economic policy changes to help spur growth.
“The first pivot has already started. It’s on monetary policy. In many countries, they’ve started to cut policy rates, and that should continue, appropriately calibrated again, depending on how inflation is going to continue to come down, ” Gourinchas said.
“The second pivot is on fiscal policy. We are moving from a period where there was tight money, but relatively easy fiscal policy, lot of spending to support activity and households, etc. We need to move to the opposite configuration. Monetary policy is going to ease, come back to neutral, but now we need to rebuild the fiscal efforts. And that is complicated. It is difficult to do, but it’s absolutely necessary in many countries, so that they can face future challenges.”
“And the third pivot is towards policies that will support growth, whether that means improving human capital, whether that means improving governance, whether that means improving or deepening economic integration.
There are many dimensions here. It’s very country specific. Not one recipe for all, but more needs to be done so that we can move away from the 3.1 per cent I described and back towards something that is a better growth number in the medium term,” he closed.
Declining growth in LAC
According to the report, In Latin America and the Caribbean, growth is projected to decline from 2.2 per cent in 2023 to 2.1 per cent in 2024 before rebounding to 2.5 percent in 2025.
The region’s growth outlook is among the lowest in emerging Markets and developing economies worldwide.
Conversely the report did indicate some positives as it projected that “Food prices are expected to decline by 5.2 per cent in 2024 and by a further 4.5 per cent in 2025 as global grain production is forecast to reach record highs in 2024–25”
Additionally, the report said that global trade as a share of world GDP has not deteriorated.
However, the IMF has stated its concern about the potential of geoeconomic fragmentation as more trade has started occurring within geopolitical blocs.