The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine

OECD Interim Economic Outlook warns of pervasive global economic slowdown

 

"The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine..."

The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide, according to the OECD’s latest Interim Economic Outlook.

The Outlook projects global growth at a modest 3% this year before slowing further to just 2.2% in 2023.  This is well below the pace of economic growth projected prior to the war and represents around USD 2.8 trillion in foregone global output in 2023.

The war has further pushed up energy prices, especially in Europe, aggravating inflationary pressures at a time when the cost of living was already rising rapidly around the world due to lingering impacts of the Covid-19 pandemic.  With businesses across many economies passing through higher energy, transportation and labour costs, inflation is reaching levels not seen since the 1980s, forcing central banks to rapidly tighten monetary policy settings faster than anticipated.

The inflation and energy supply shock stemming from the war has led the OECD to revise its previous growth projections downward worldwide.  Annual GDP growth is projected to slow to around 1/2% in the United States in 2023, and 1/4% in the euro area, with risks of deeper declines in several European economies during the winter months.  Growth in China has also been hit and is expected to drop to a projected 3.2% in 2022.  Except the 2020 pandemic, this will be the lowest growth rate in China since the 1970s.

Inflation is projected to recede gradually through 2023 in most G20 countries as tighter monetary policy takes effect and global growth slows.  Headline inflation is projected to ease from 8.2% this year to 6.6% in 2023 in the G20 economies, and fall from 6.2% this year to 4% in 2023 in the G20 advanced economies.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine.  GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD Secretary-General Mathias Cormann said during a presentation of the Outlook.  “Inflationary pressures that were already present as the global economy emerged from the pandemic have been severely aggravated by the war.  This has further driven rising energy and food prices that now threaten living standards for people across the globe.”

The OECD points to substantial uncertainty about the economic outlook, with significant downside risks.  These include the possibility of further food and energy price spikes, which could push many people into poverty, as well as the possibility of gas shortages as winter progresses in the Northern hemisphere.  Reducing energy consumption and diversifying supply sources will be critical to avoid shortages, which would push global energy prices up, damage confidence, and likely worsen financial conditions and require a temporary period of enforced reduction of gas use by businesses.

Taken together, these shocks could reduce growth in the European economies by over 1¼ percentage points in 2023, relative to the Outlook’s central projection, and raise inflation by over 1½ percentage points.  This would push many countries into a full year recession in 2023, while GDP growth would also be weakened in 2024.

Other key risks are that the ongoing adjustments in Chinese property markets - combined with the high level of corporate debt in China and continuation of the country’s “zero-Covid” policy - could generate a more severe slowdown in the world’s second largest economy than projected.  This risk comes on top of continued costs from global supply chain pressures, and possible debt crises and financial contagion in many emerging-market and low-income economies.  

Further monetary policy tightening will be needed in most major economies to ensure that inflation pressures are reduced durably.  This will need to be calibrated carefully given uncertainty about the speed at which higher interest rates will take effect and spillovers from tightening in the rest of the world.

Fiscal support can help cushion the impact of high energy costs on households and companies, but should be concentrated on aiding the most vulnerable and preserve incentives to reduce energy consumption.  Fiscal actions to cushion living standards must avoid persistent stimulus at a time of high inflation.  Means-tested transfers to households broadly meet this criteria.

Managing the energy crisis requires renewed efforts to secure alternative supplies while ensuring all sectors of the economy are incentivised to reduce demand.  There is also an urgent need for governments to accelerate investment in energy security and invest in the green transition.

For the full report and more information, visit the Economic Outlook online. Media queries should be directed to the OECD Media Office (+33 1 4524 9700)

26/9/2022

Source

Geothermal energy in the Caribbean: Energy security or political play?

By Rebecca Theodore:


At a time when the world is experiencing an energy crisis, the process of rising heat from the earth as a stimulant to economic growth becomes very beneficial to many Caribbean nations. However, while many contemplate that geothermal energy is an ambitious opportunity to utilize wealth and recognition among member states and international markets, the financial challenges associated with it are many and varied, and now beckons the need for international ‘tenders’ to promote the sound development of the project.

Whereas detractors continue to charge that the harnessing of geothermal energy in the Caribbean could have a negative impact on the carbon footprint through deforestation, the release of hydrogen sulfide and the disposal of toxic geothermal fluids into the atmosphere; evidence also point to the fact that geothermal is the best type of renewable energy in terms of cost, efficiency, and safety.

Scientific evidence further illustrate that geothermal energy is a major factor in combating the adverse effects of climate change in the Caribbean. Geothermal energy doesn’t produce any type of greenhouse effect, and does not consume any energy since it’s renewable energy and there is no consumption of any type of fossil fuels.

In all truism, geothermal energy in the Caribbean have the prospective to address economic development, climate change mitigation, and stipulation of affordable energy and should be listed on the United Nations Millennium Development Goals (MDG) as an alternative to poverty reduction and to energy security.

Yet, unethical clouds smudge the dust for action and solutions.

So what if anything should Caribbean government’s make of the financial challenges facing geothermal energy? For one, Caribbean islands are now locked in long term contracts that have no incentive for power producers to develop more economic methods in order to maximize benefits.

Market research reports that “electrical supply across much of the Caribbean is generated by expensive and polluting oil- or diesel-fired generators and millions of dollars are spent on fossil fuel imports.”

Economic analysts further state that “it is the high cost of energy that presently paints the un-competitive business portrait for the Caribbean on the international market. Dependency on imports of foreign fossil fuel affect the balance of payment and contribute toward micro and macroeconomic challenges, such as inflation, increased cost (and loss of competitiveness) of local industry, depreciation pressures, and further external indebtedness.”

In essence, “the future of geothermal energy in the Caribbean “is very bright,” but Caribbean governments cannot undertake the project solely admits Sturla Birkisson, senior vice president at Iceland Drilling Company. In this light, government money and international funds are needed to mitigate the financial risk and cover the initial costs in the form of soft loans in case exploratory projects prove unsuccessful.”

Energy Sector Management Assistance Program (ESMAP) of the World Bank published report further states that “the main challenges associated with the development of geothermal energy generation in the Caribbean includes the financial resources needed to confirm the resource potential of specific sites, financing of exploration, production and injection wells, and power plant development. The legal and regulatory framework, the lack of a comprehensive inventory of geothermal resources with high quality data, environmental and social impacts, and power sector planning are also other adversary factors.”

As a result, if financial measures are to be met in the cultivation of geothermal energy, then Caribbean governments will “need to develop resources themselves, or negotiate a fair price with a responsible developer that puts some value to the community and supports the growth of it and stimulates its development.”

Given these circumstances, the most dramatic illustration of the financial challenges of geothermal energy now shines light on the Caribbean island of Dominica. With the highest percentage of renewable energy in its energy mix among Caribbean nations, it would take an exceptional scale of energy tone deafness not to mention the Skerrit administration energy policies.

Even for a government that now boast that it has spent more than $US12 million in developing the geothermal industry on the island, and has sought the advice of the Clinton Climate Initiative, and presented the project as one of its theme at the sixty-seventh session of the United Nations General Assembly; it still fails to show the political will and leadership to enlarge and diversify the ‘portfolio of options’ that geothermal energy entails.

Subsequently, the project lies crippled in cronyism and unprofessional conduct.

Perhaps proponents may want to evidence leaked diplomatic cable released by Wikileaks that allege the United States embassy in Barbados is unfavorable to the government of Dominica’s plan on moving forward in developing the island’s geothermal potential, but if as the Dominica prime minister asserts that “one of the weaknesses of Renewable Energy (RE) initiatives and Efficient Energy initiatives (EE) in the Caribbean is the lack of projects to demonstrate the benefits,” then, the harnessing of geothermal energy cannot continue to be cloaked in secrecy and locked in a partisan political play.

In order to maximize the benefits of geothermal energy in the Caribbean, it is clear, that bi-partisan efforts and inputs from environmentalists and consultants are needed to help government negotiate a fair price with international developers.

Progressively, the long-term needs of energy security in the region is now of high importance and at this point, Caribbean governments should seek to develop an “integrated project management solution” and a systematic review and re-examination of geothermal resources for energy production. It would not only help in meeting the ongoing energy crisis in the world at large and boost the national security of many Caribbean nations, but it will also become a valuable alternative energy source for future generations.

Thus, it is now evident that the answer to wealth and recognition for many Caribbean nations lie beneath.

September 04, 2014

Caribbean News Now