ENERGY But Long Equipment Lead Times and Delays Hit Projects

By Aditya Munshi, Julian Rippy, IPA

Over the past few months, the data has shown that the global economy continues to struggle despite some positive spots. Overall, the greatest threat to the global economy comes from high levels of uncertainty. We continue to see economic disruptions from the war in Ukraine and the continuing global recovery from the era of Covid-19 shutdowns, while recent pressures in the banking system have increased worries about global economic prospects.

The International Monetary Fund (IMF) estimated that global economic growth is likely to fall to 2.9 percent in 2023, down from 3.4 percent in 2022. This is the second year in a row that the IMF has reported lower prospects for economic growth. Similarly, the World Bank predicted a global rate of growth of just 1.7 percent in 2023, only about half of what it had projected for the year at the start of 2022.

AT BREAKBULK EUROPE…

Global Project Review

Thursday 08 June 12:00 - 12:30

An important source of uncertainty is the policymaking processes of major central banks worldwide. Markets have watched the Federal Reserve and European Central Bank for several quarters, looking for signs that the current program of interest rate hikes was ending. Persistently high inflation, however, has led central banks to pursue hawkish policies on interest rates up until the publication of this article. Both the U.S. and major European economies are seeing inflation at levels unmatched since the 1980s, with the U.S. reporting a 6 percent year-over-year inflation rate as of February 2023 and the EU reporting an 8.5 percent inflation rate over the same time period. These rates are both lower than the peak rates we saw in both places in 2022. Despite attempts to mitigate inflation, it has remained stubbornly high due to high commodity prices as well as consistently high wages and tight labor markets across most developed economies. However, the outlook for central bank policy may finally be changing as adverse events in the technology and financial sectors in recent months raise the possibility that central banks will halt rate increases in the near future.

The current outlook for capital expenditure is uncertain and varies widely across industries. When commodity prices are high, as they are now, we generally expect increased capital expenditure, but this effect is offset by ongoing economic uncertainty. The Federal Reserve Bank of Dallas’ (Dallas Fed) Texas Energy Outlook Survey, however, shows a bright spot for the energy sector. Each quarter, the Dallas Fed conducts a survey of