World Bank: Rising Energy Prices, Slowing Economy

Economics & Macro

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Adi Ahdiat 06/09/2022 15:20 WIB

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According to the World Bank, rising energy prices could lead to an economic slowdown, particularly in oil-importing countries.

Economic Slowdown Projection due to Energy Price Increases (2022-2023)

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World Bank: Rising Energy Prices, Slowing Economy

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Economic Slowdown Projection due to Energy Price Increases (2022-2023)

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The Indonesian government recently raised the price of subsidized fuel (Pertalite and Solar) and non-subsidized fuel (Pertamax) on September 3, 2022.

The Head of the Fiscal Policy Agency (BKF) of the Ministry of Finance, Febrio Kacaribu, estimates that the fuel price hike will push Indonesia's annual inflation to the range of 6.6%-6.8% until the end of 2022.

This figure is higher than the inflation forecast before the fuel price increase, which was only 4%-4.8%.

"We measure the impact of this fuel price increase as adding 1.9% to inflation. With the combination of ensuring that food distribution remains stable, inflation can be kept below 7% until the end of the year," said Febrio, as reported by *Katadata.co.id*, Monday (5/9/2022).

However, in addition to increasing inflation, the increase in fuel prices and energy commodities in general can also impact economic slowdown. This was revealed by the World Bank in its *Global Economic Prospects* report, June 2022 edition.

"Our simulations show that higher energy prices, including oil, natural gas, and coal, could reduce global economic growth by 0.5 percentage points in 2022, and then by 0.8 percentage points in 2023," explained the World Bank in the report.

The World Bank also explained that the level of impact will differ between developed and developing countries.

For developed countries, the increase in energy prices is predicted to reduce economic growth by 0.69 percentage points in 2022 and 0.95 percentage points in 2023.

Meanwhile, for developing countries, the slowdown is expected to be lower, at a reduction of 0.16 percentage points in 2022 and 0.49 percentage points in 2023.

The World Bank further emphasized that general price increases have a positive impact on energy commodity exporting countries but a negative impact on importing countries.

"Oil-importing countries may experience a worsening fiscal position due to weakening domestic economic activity and increased costs of providing fuel subsidies," explained the World Bank.

"In this situation, governments can prioritize policies that promote energy efficiency and accelerate the transition to low-carbon energy sources. Meanwhile, targeted social assistance for vulnerable groups can be prioritized over energy subsidies, which in the current context can delay the zero-carbon economic transition," it continued.

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."