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The transition to a low-carbon economy, which is needed to mitigate climate change and meet the Paris Agreement temperature goals, has been affected by the supply chain and energy supply disruptions that originated during the COVID-19 pandemic, the Russian invasion of Ukraine, and the subsequent energy crisis and exacerbation of geopolitical tensions. These developments, and the broader context of the ongoing “polycrisis,” can affect future decarbonization scenarios. This reflects three main factors: (1) pullbacks in climate mitigation policies and increased carbon lock-in in fossil fuel infrastructure and policymaking; (2) the decreasing likelihood of continuous cost reduction in renewable energy technologies; and (3) the likely intensification of macroeconomic shocks amid increasing geoeconomic fragmentation, and the associated policy responses. In this context, the note assesses the implications of the polycrisis for hypothetical scenarios used to assess climate-related financial risks. Following an analysis of the channels through which these effects are likely to materialize over short- and long-term horizons and some policy implications, the note proposes potential adjustments to the design of the climate scenarios used by financial institutions, central banks, and financial sector supervisors and regulators within their risk management frameworks.
The world is currently undergoing an historic energy transition, driven by increasingly stringent decarbonisation policies and rapid advances in low-carbon technologies. The large-scale shift to low-carbon energy is disrupting the global energy system, impacting whole economies, and changing the political dynamics within and between countries. This open access book, written by leading energy scholars, examines the economic and geopolitical implications of the global energy transition, from both regional and thematic perspectives. The first part of the book addresses the geopolitical implications in the world’s main energy-producing and energy-consuming regions, while the second presents in-depth case studies on selected issues, ranging from the geopolitics of renewable energy, to the mineral foundations of the global energy transformation, to governance issues in connection with the changing global energy order. Given its scope, the book will appeal to researchers in energy, climate change and international relations, as well as to professionals working in the energy industry.
This paper studies the economic impact of fragmentation of commodity trade. We assemble a novel dataset of production and bilateral trade flows of the 48 most important energy, mineral and agricultural commodities. We develop a partial equilibrium framework to assess which commodity markets are most vulnerable in the event of trade disruptions and the economic risks that they pose. We find that commodity trade fragmentation – which has accelerated since Russia’s invasion of Ukraine – could cause large price changes and price volatility for many commodities. Mineral markets critical for the clean energy transition and selected agricultural commodity markets appear among the most vulnerable in the hypothetical segmentation of the world into two geopolitical blocs examined in the paper. Trade disruptions result in heterogeneous impacts on economic surplus across countries. However, due to offsetting effects across commodity producing and consuming countries, surplus losses appear modest at the global level.
Korea faced challenges from inflation, growth slowdown, and financial stress in the wake of the pandemic. Growth started to slow in mid-2022 as global demand for electronics waned and domestic demand weakened but has begun to gradually recover in recent quarters. Headline inflation has declined from last year’s peak, though core inflation has remained more persistent. Pockets of financial vulnerability have emerged, but swift policy measures have helped to stabilize financial and housing markets. Despite having increased, systemic financial risks appear to remain manageable.
The GCC region’s non-hydrocarbon growth momentum remains strong, driven by higher domestic demand, increased gross capital inflows, and reform implementation. Oil production – which depends on OPEC+ decisions – will be subdued in the near term. Inflation is contained and current account surpluses are high. Fiscal balances remain healthy, supported by fiscal reforms and high oil prices. The primary non-oil deficits are expected to decrease to 24 percent of GDP by 2028, with higher non-oil revenue reflecting sustained fiscal and structural reforms and contained expenditures. High global uncertainty is weighing on the outlook.
Growth is estimated to have reached 4.8 percent in 2023 and is projected to slow to 3.1 percent in 2024. Inflation declined to 9.8 percent in 2023, still well above the National Bank of Kazakhstan (NBK)’s target of 5 percent. Risks to the outlook are tilted to the downside. The state’s footprint in the economy remains large and structural reform implementation has been slow in recent years. Despite strong buffers, the economy needs to be better prepared for future shocks in both the short term (e.g., from war spillovers, inflation, and global economic and financial conditions) and the medium term (e.g., from geo-economic fragmentation, climate events, and global decarbonization).
The economy continues to recover while inflation is low. Banks’ credit is expanding, and the financial sector appears sound and stable. The current account is in surplus and international reserve coverage is adequate. The fiscal position in FY2023 was better than budgeted, while public debt remained below the authorities’ soft debt target.
The latest World Economic Outlook reports signs that policy tightening is starting to cool activity despite core inflation proving persistent. Risks are more balanced as banking sector stress has receded, but they remain tilted to the downside. Monetary policy should stay the course to bring inflation to target, while fiscal consolidation is needed to tackle soaring debts. Structural reforms are crucial to revive medium-term growth prospects amid constrained policy space.
We examine the role of metals as economic inputs by using a production network model, calibrated for various countries using input-output (I-O) tables. Empirically, we employ local projections to study how metal shocks influence inflation, testing country-level heterogeneity in the sensitivity to these shocks. Our findings indicate that metals price shocks have significant and persistent effects on core and headline inflation, with particularly pronounced effects on countries that are highly exposed to metals in their production networks. This is in contrasts to oil supply shocks, which predominantly affect headline inflation. A shift of the global economy towards a higher relative metals intensity due to the energy transition could lead to commodity price shocks increasingly influencing core rather than headline inflation. This could make commodity price shocks less visible on impact but more persistent. Central banks should consider this shift when assessing inflation dynamics and risks.

Belgium

International Monetary Fund. Monetary and Capital Markets Department

Published: 2023-12-08

Total Pages: 116


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The financial sector has remained resilient to a series of shocks and is well capitalized and profitable, but risks remain. Bank profitability and capital have surpassed pre-pandemic levels. Liquidity buffers remain strong and banks’ direct exposures to Russia are limited. The insurance and investment funds sectors have also weathered the pandemic well. There is limited evidence of credit or asset price booms over the past decade. However, inflationary pressures, partly the result of spillovers from Russia’s war on Ukraine, and a rapid tightening of financial conditions have weakened activity and reined in credit demand. Among high uncertainty, GDP growth is projected to slow in 2023, before returning to potential over the medium-term.