Higher Energy Prices Could Trigger Global Recession, IEA Warns

•IMF says economic outlook has ‘darkened’  

•In Davos, WEF seeks ‘Marshal Plan’ to reconstruct Ukraine

Ndubuisi Francis

A rise in energy demand in the summer could send prices higher and risk a global recession, the head of the International Energy Agency (IEA), Fatih Birol has warned.

Birol, who called on, “everybody in the global energy markets” to do what they can to keep a lid on prices, told Bloomberg TV in an interview on the sidelines of the ongoing World Economic Forum’s (WEF) meeting in Davos, Switzerland, yesterday, that all players in energy markets should make a, “positive contribution” to avert price rises.

His warning came as multiple threats to the global economy topped the worries of the world’s well-heeled at the annual Davos think-fest, with some flagging the risk of a worldwide recession.

Political and business leaders are meeting in Davos against a backdrop of inflation at its highest level in a generation, in major economies including the United States, Britain and Europe.

The Chairman of the WEF, Prof. Klaus Schwab called for a “Marshall Plan” for the reconstruction of Ukraine, while the Managing Director of the International Monetary Fund  (IMF), Kristalina Georgieva, said the war in Ukraine, tighter financial conditions and price shocks, for food in particular, have clearly “darkened” the outlook in the month, noting however, that she was not yet expecting a recession.

The IMF had last month cut its global growth outlook for the second time this year, citing the war in Ukraine and singling out inflation as a “clear and present danger” for many countries.

On her part, European Central Bank (ECB) President and immediate-past IMF managing director, Christine Lagarde, who was expected to speak in Davos today, has warned that growth and inflation were on opposing paths, as mounting price pressures curb economic activity and devastate household purchasing power.

“The Russia-Ukraine war may well prove to be a tipping point for hyper-globalisation,” she said in a blog post on yesterday.

“That could lead to supply chains becoming less efficient for a while and, during the transition, create more persistent cost pressures for the economy,” Lagarde added.

According to agency reports, the WEF Chairman, Prof. Klaus Schwab, in his opening remarks at the Davos meeting said: “Our first thoughts are with the war in Ukraine. Russia’s aggression on their country will be seen in future history books as the breakdown of the post-World War II and post-Cold War order.

“This is the reason why we speak about a turning point in history. In Davos, our solidarity is foremost with the people suffering from the atrocities of this war.”

Meanwhile, the repercussions on oil and food markets of Russia’s invasion of Ukraine in February – which Moscow described as a “special military operation”,  and COVID-19 lockdowns in China with no clear end have compounded the global gloom.

According to German Vice Chancellor Robert Habeck: “We have at least four crises, which are interwoven. We have high inflation … we have an energy crisis… we have food poverty, and we have a climate crisis. And we can’t solve the problems if we concentrate on only one of the crises.

“But if none of the problems are solved, I am really afraid we are running into a global recession with tremendous effect .. on global stability,” Habeck said during a WEF panel discussion.

Energy prices have risen sharply in 2022 after Russia, a major supplier, invaded Ukraine in late February.

The comment by Birol that a rise in energy demand in the summer could send prices higher and risk a global recession came in the context of a sharp rise in global energy prices as a result of Russia’s invasion of Ukraine.

Western countries are trying to cut their reliance on Russian energy, with the European Union (EU) trying to reach an agreement on a total ban of oil imports from the country.

Birol said these efforts were necessary to punish Russia, but warned they increased the risks for energy markets and the world economy.