Driving Forces

The principal driver of demand for all energy
sources is economic growth, namely the rate of
GDP growth. In response to recent global financial
and economic crises, most large economies
introduced fiscal stimulus packages, involving tax
reductions or spending increases, between late
2008 and mid-2009. Although these packages
have helped mitigate the effects of the crises, they
have also led to a ballooning of budget deficits and
a sharp rise in national debt in many countries,
especially in the OECD. Now many of these
countries are faced with a need to tackle these
debt problems. The fear remains that cutting debts
may result in a slowdown of economic recovery
(leading to a recession and debt spiral).
With growth prospects in the OECD countries likely
to remain relatively weak for several years as they
grapple with rising national debt, the emerging
economies will remain the main drivers of the
global economic recovery. The International
Monetary Fund (IMF) suggests that the “sustained
rapid growth” in the non-OECD countries will hinge
on their ability to absorb rising inflows of capital
and nurture domestic demand without triggering a
new boom–bust cycle. In addition, the IMF
acknowledges that the outlook for economic activity
remains unusually uncertain, and risks are
generally to the downside.
The risks to growth associated with the surge in
public debt in the advanced economies are the
most obvious, especially with respect to market
concerns about sovereign liquidity and solvency in
a few European countries (i.e., Greece, Italy,
Spain, and Portugal), and the danger that these
concerns could evolve into a full-blown and
contagious sovereign debt crisis. The International
Energy Agency (IEA) also expects that banks’
exposure to toxic assets (mortgages and
household debt) could also threaten further turmoil
in financial markets, particularly in the US and
Europe.
The IEA’s outlook on economic growth assumes
that the world...