The IMF’s Christine Lagarde painted a gloomy picture for the world economy today in Frankfurt. The recovery that began in emerging markets hasn’t been taken up by advanced economies, and it “remains too slow, too fragile, and risks to its durability are increasing”.
Bad news for those pinning their hopes on oil demand being the way out of the current oversupply situation. There is more crude than ever sloshing around in US tanks, and the prospects of this month’s producer meeting in Doha agreeing a magic-bullet solution recede with every public utterance from Riyadh or Tehran.
And yet a supply solution, no matter how fraught, is always going to be easier than a demand solution. Supply can be turned on, up, down and off. Yet years of loose monetary policy —quantitative easing and all that — has largely failed in its aims of greasing the cogs of the world’s post-crisis economy. The result, as Lagarde again cautioned, is that the world faces a prolonged period of what she calls “the new mediocre”. And mediocre doesn’t need so many barrels of oil.
Lagarde’s talk of the need for structural reforms and growth-friendly policies was familiar territory. But increasingly the IMF is buying into the idea that inequality — what Lagarde called “the yawning gap in individual fortunes” as “perceptions abound that the cards are stacked against the common man” — is crimping growth.
This is a message the energy industry needs to buy into. Lagarde cited a recent Oxfam report that says the world’s richest 62 people own the same wealth as the world’s poorest 3.6bn people. These 62 may be capable of the most conspicuous of consumption, but even the smallest change to that balance would provide much more of a boost to demand for crude, refined products, petrochemicals and the rest.
Lagarde is pushing at a door that, while not open, is at least ajar. Public awareness of the matter is at an all-time high after recent revelations of industrial-scale tax avoidance from a Panamanian hub.
So, inequality is certainly an energy issue. But it’s certainly not at the forefront of policy thinking. The chances of producer nations stopping to consider cui bono in Doha are about as slim as a valedictory post-meeting press conference fronted by a smiling Iranian and jocular Saudi.
Lagarde took the opportunity to quote a little Faust, as she was speaking in Frankfurt. Those who have seen their wealth elevated into the stratosphere through returns on commodities might take a minute to think of the bargain they’ve made, and whether that could be ripe for renegotiation.