00:00Petia Kueva-Brooks, IMF Deputy Director of the Research Department.
00:04Petia, on a day like today, I have to ask you if you might be rethinking perhaps your conclusions if
00:10this kicks off again.
00:13Well, we do think that the global outlook is shaped by the forces of the war shock and also AI.
00:21And what we are seeing with the most recent developments overnight is that there is, of course,
00:26still a lot of uncertainty remaining and risks are very high,
00:30which is why what we also emphasize is that overall we do see risks on the downside
00:36with the escalation of the conflict being a primary driver of those downside risks.
00:44Petia, when this conflict first broke out, many energy experts pointed to a worst-case scenario
00:51where oil not only went to $100 a barrel, which it did get to, but continued to climb.
00:55And maybe neared something like $200 a barrel.
00:58There were certainly calls for that, and we didn't live through those worst-case scenarios.
01:02We're still trading under $80 a barrel this morning, even though we are moving higher.
01:05Has this made us rethink just the amount of damage this conflict closing the Strait of Hormuz
01:11can do to energy markets and thus this global economy?
01:15Well, what we have seen is indeed quite a lot of resilience
01:19and margins of adjustment within commodity markets.
01:24And just to be upfront about this, our baseline now is predicated on a forecast of oil prices
01:33at $89 per barrel in 2026.
01:37But you're right.
01:38When it started in April, we considered a variety of scenarios,
01:42including very high oil prices for several years.
01:45What's happened since then, in some ways, we could have seen a much larger shock
01:50if several forces hadn't been in play.
01:53One is the impact of the use of strategic reserves,
01:59which had played a role in order to mitigate that impact.
02:05But another important factor is that production increased outside the Gulf region.
02:13And importantly, oil demand also came down, especially coming from Asia.
02:19So again, I think we were, you know, and many were perhaps surprised by the resilience of the market.
02:29And then the real question is how long this resilience could last,
02:33because at least some of the mechanisms that were in place so far,
02:36including the use of reserves, may not be as viable of a tool going forward,
02:42given that now reserves have come to lower levels.
02:45Well, exactly, Petit.
02:46I mean, I think why there was such relief in the market was because we didn't actually hit those tank
02:50bottoms, right?
02:51Those reserves did hold out.
02:53But if this all kicks off again, the strike closes up again,
02:56who knows what might happen and, you know, forecasts might have to change a lot.
03:00Now, let's just baseline say this is the forecast that, you know, that carries us through the next three months.
03:07What happened to all of the Southeast Asian countries and all of the oil importers that really desperately hurt even
03:14up to now?
03:15So that's where we really see a whole spectrum of outcomes.
03:22And we have seen indeed the countries that were energy importers and that were not plugged in into the AI
03:31investment cycle
03:33are the ones that are experiencing worse outlook.
03:38But then there are those who are, even though they're commodity importers and Korea here comes to mind,
03:45we're actually upgrading their forecasts because, again, of the very, very strong impact of the strength of the exports
03:54in the tech sector that we saw in the first quarter of this year and is still ongoing.
04:00Well, one of the big risks to the downside that you flag is an AI correction.
04:04Are you viewing that in terms of just like personal wealth, considering what's happening in South Korea here in the
04:10American equity markets,
04:11just how over-index households right now are to the stock market and specifically AI trade?
04:15Or is it a risk for these hyperscalers themselves if you see something of a correction that CapEx pulls back
04:21in a serious way?
04:24So when it comes to AI, we do see the risks as two-sided.
04:28We've not incorporated any of the potential productivity gains that would come from AI in our forecast.
04:34And if we see faster adoption of AI, of course, this is something that we need to consider.
04:39But your question on the downside, I think a lot of the activity that we've seen is indeed coming from
04:46investment and in the tech sector, AI-related.
04:50And that is, of course, having also – there's a lot of enthusiasm and a lot of the increase in
04:59equity markets that we had observed is also linked to these expectations about future productivity gains.
05:06So if those were to unwind – and we did consider a scenario like that in our April report –
05:14then, of course, the impact of the unwinding of the investment boom plus the potential decline in equity prices,
05:24which would then mean through wealth effects, people would not be consuming as much, firms would not be investing as
05:31much.
05:31And the impact of all of that could really be quite sizable for the global economy.
05:37And again, depending on what we're talking about, we have numbers that range from 0.2, 0.3 for global
05:43growth all the way to 1.2.
05:47What would it take looking forward for the economy to recover the path of the most robust growth that we've
05:53seen in some time?
05:54I mean, it's been pretty resilient through COVID and very many other shocks, but it could be better, right?
06:00Well, we are projecting a V-shaped recovery right now with all of the risks and the caveats that I
06:06already mentioned.
06:07And I think having the truth stay in place is a critical part of that.
06:14But then other aspects of this is really related to trade tensions.
06:20If those were – we do see an upside that if actually, you know, those trade tensions and there were
06:27new deals and new partnerships and such,
06:30that would be something that would help resolve some of the uncertainty and as well as provide support to growth.
06:40And importantly, also, you know, going ahead with our recommendations on structural reforms,
06:48including for the energy transition and such, and addressing fiscal risks would be another part of the story.
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