IMF Chief Georgieva warns: Think the unthinkable and prepare for it

(Patria) - International Monetary Fund chief Kristalina Georgieva warned at a symposium in Tokyo that disruptions in oil and gas supplies have caused shocks.

"We are witnessing a re-testing of resilience due to the new conflict in the Middle East. Important oil and gas facilities have suffered damage and disruptions; shipping traffic through the Strait of Hormuz has fallen by 90 percent.

For much of Asia and the world, energy security has climbed the list of concerns. If the new conflict continues, it has clear and obvious potential to affect market sentiment, growth, and inflation, posing new challenges for policymakers.

Two facts. First, about a fifth of global oil supply and LNG trade typically transits through the Strait of Hormuz. This includes almost half of Asia’s oil imports and about a quarter of its LNG imports. For Japan, those figures are close to 60 percent of oil imports and 11 percent of LNG imports. And second, global oil prices have risen by almost 50 percent since December, while Asia and Europe are facing steep increases in gas prices.

As a general rule, we see that every 10 percent increase in oil prices – if sustained for most of this year – results in a 40 basis point increase in global inflation and a 0.1-0.2 percent drop in global output," she said.

And even if the conflict ends soon, Georgieva points out that there will be some new shock.

"My advice to policymakers everywhere in this new global environment? Think the unthinkable and prepare for it. Yes, but how? By focusing on what you can control. Three pieces of advice. First, invest in strong institutions and policy frameworks to support robust economies and private sector-led growth. Second, use policy space when needed and be sure to supplement it. Third – above all – be agile," she stated.