High commodity prices and growing trade imbalances threaten recovery gains, the European Bank for Reconstruction and Development (EBRD) warns.
While higher prices may benefit commodity exporters such as Azerbaijan, Kazakhstan and Russia, they may have a lasting negative effect on importers, particularly in the southern and eastern Mediterranean region, the London-based institution says in its latest Regional Economic Prospects (REP) report, published on Thursday (Nov. 4).
Growing concerns about potential shortages of gas over the winter period could drive public sentiment away from renewable energy and push countries towards greater use of fossil fuels, the report also warns.
“High prices of natural gas, oil and other commodities weigh on the trade balances of energy importers. Many countries will be under pressure to mitigate the burden of higher energy expenses on low-income households. High energy prices, supply-chain disruptions and, in some cases, currency depreciation have pushed up inflation significantly. This is a cause for concern” EBRD Chief Economist Beata Javorcik said.
The first few months of the Covid-19 saw dramatic falls in commodity prices as economic activity collapsed. Prices have since rebounded on the back of strong demand for manufactured goods and construction, the report says.
The price of Brent crude oil, the international benchmark, exceeded US$ 80 per barrel in early October 2021. Both Brent and WTI futures posted their biggest daily percentage declines since early August on Wednesday (Nov. 3) but remained above the $80 mark.
In Europe, gas prices have skyrocketed. The rise in demand for gas means that prices could stay higher for longer, the EBRD’s economists argue.
The report notes that several countries are considering measures to support households at risk of energy poverty. The Czech Republic and Poland have urged the European Council to discuss additional carbon emission allowances and a cap on energy prices.
The Bank has raised its forecast for its regions for 2021 to 5.5%, representing an upward revision of 1.3% over its June forecast following a strong performance in the first half-year,
In 2022, as economies recover, growth is expected to moderate to 3.8% The forecasts are subject to a high degree of uncertainty, however, due to risks associated with the future path of Covid-19, a possible worsening of external conditions and weaker economic growth in trading partners.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies, or OPEC+, met today and the cartel agreed at a meeting to stick to plans to raise oil output by 400,000 barrels per day from December, in line with market expectations despite calls from the United States for extra supply to cool rising prices.