The IMF raised its forecast for the price of oil next year by about 15% today and said governments and consumers would have to change their habits to
adjust to an era of expensive energy.
In its semiannual World Economic Outlook, the IMF said it now expected oil prices to average $54.23 a barrel in 2005, not $46.50 a barrels as previously forecast, and $61.75 a barrel in 2006 instead of $43.75 a barrel.
The International Monetary Fund said that the price of oil was now three times higher than the 20-year average, and it warned that some governments would have to adjust subsidies for oil consumption if prices remain at high levels.
This echoed recent warnings from the International Energy Agency that oil subsidies being paid by a number of Asian countries to shield consumers from the price rises were unsustainable.
The IMF also said that oil-consuming nations would have to be increasingly vigilant regarding interest rates in view of the inflationary pressures inherent in high oil prices. But it forecast that, on the evidence of the 1970s, consumption patterns would change only when importing countries had suffered from significant current account deficits and consumers had experienced a fall in their purchasing power owing to a rise in the price of oil products.
Growing concern about the adequacy of supply was being fed by signs of increasing oil demand in emerging economies such as India and China, a lack of spare capacity from OPEC producers, and worry about the reliability of supply from non-OPEC producers, the IMF said.
The IMF report commented that there was evidence that the impact of expensive oil had not yet filtered through. The report resumed some of the effects of high oil prices: a reduction of corporate profits, inflation arising from increases in the cost of supplying consumer goods, a weakening of confidence among investors and consumers which delayed investment and spending.
So far the world economy had largely surmounted these dangers, the IMF said, forecasting global economic growth of 4.3% this year. Based on simulations of the world economy, the cumulative rise in oil prices since 2003 had reduced economic output by 1.0-1.5%, it said.
Observing that further increases in the price of oil could not be ruled out, the IMF said: 'These increases are likely to have a more marked effect on inflationary expectations, requiring a more active monetary policy response.'
Industrialised economies were far less dependent on oil now than in the 1970s and this mitigated the impact of price increases. Oil intensity, a measure of oil consumption, had fallen by 38%.
