Global economy digests oil price hikes

Despite a fourfold increase in oil prices over the past decade, the world has absorbed the price hikes with relatively little disruption due to fundamental changes in the workings of the global economy, and the use of macroeconomic policy to mitigate the effects of rises, IMF Survey Magazine has said. In his article, Jorg Decressin of IMF Research Department, said during the current economic downturn, the price of oil hit over $100 a barrel, and prices rose close to levels only seen in the 1970s. But the increases have not triggered global recessions as they did in the 1970s and 80s, reported the Saudi Gazette Sunday. In the new research, IMF economists attribute this resilience to five underlying factors: Stronger demand: Increases since 2000 has been stronger-than-expected demand from emerging market economies. Central bank policies: Greater awareness of the impact of high wage increases including lost employment and reforms to labor markets have led to more job-friendly wage setting. Central banks have become more adept at convincing workers that oil price increases will not feed through into inflation. Recycling the benefits of oil profits: The revenues from oil exports are flowing back to oil-importing economies. This helps bring down interest rates for households and firms, and so supports investment and growth in these economies. Greater efficiency: Major emerging markets are also becoming more efficient in the use of energy, and they are expected to continue to make efficiency gains. By 2030, the major regions of the world the United States, China, and India are projected to have the same energy intensity. Diversification Countries have increasingly diversified their energy sources over recent decades. They import energy from many more places than in the 1970s. They also use more varied forms of energy. This makes them less vulnerable to disruptions from any one supplier or source of energy. By 2030, it is expected that energy use will be even more diversified. Oil, coal, and gas are predicted to each have a 30 percent world market share, with hydro, nuclear and renewables accounting for the remaining 10 percent. However, despite the reduced impact of high oil prices in recent years, large, abrupt price changes remain difficult to absorb, particularly if they come from supply disruptions.