Growth will slow for all industrialised nations, agency predicts

The world's economic growth is slowing along with oil demand, predicts the International Energy Agency.

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Global economic growth will slow to nearly 4 per cent a year as debt and inflation in developed nations take their toll, according to the International Energy Agency (IEA).

Organisation for Economic Co-operation and Development (OECD) countries would bear the brunt of the GDP slowdown and contribute to a worldwide drop in oil consumption, the agency, which is based in Paris and represents 28 industrialised nations, forecast in a report yesterday.

"There are certainly growing concerns about the health of the global economy," the IEA said. "Government debt in the OECD and the spectre of inflationary pressures and currency protectionism in emerging markets raise fears that expectations of 'business-as-usual' 4.5 to 5 per cent world GDP growth are unsustainable."

The IEA cut its oil demand forecast for this year by 200,000 barrels per day (bpd) and for next year by 400,000 bpd on the back of the slower economic growth. That followed similar cuts announced on Monday by Opec.

"Global oil demand continues to expand at only a tepid pace," said the IEA.

Brent, the European crude benchmark, fell below US$112 after the report but recovered to $112.60.

Oil has traded between $100 and $120 since the beginning of the six-month civil war in Libya. The country's 1.6 million bpd capacity has dwindled to 100,000 bpd, depriving world markets of Libya's prized light crude.

In July, the IEA released 60 million barrels of oil from strategic reserves in the US and its member countries to help fill the gap. The move only temporarily pushed down oil prices, which many economists say are contributing to global economic woes.

The IEA predicted Libya would be able to reach a quarter of its pre-conflict levels by the end of the year and reach full capacity within two to three years, in line with industry estimates but double the timetable predicted by Opec.

Libya's ability to restore production depends on the willingness of foreign oil companies to redeploy foreign staff there. On Monday, loyalists to Muammar Qaddafi attacked a refinery and killed 15 guards, stoking concerns about the ability of the National Transitional Council to secure its most important industry.

"It illustrates the ongoing security issues around the energy infrastructure in Libya," said Henry Smith, the Libya analyst with Control Risks, the risk assessment firm based in London. "There was a sense when Tripoli fell that the conflict was coming to an end, but … once the rebels get their principle economic resource up and running again, then it attracts attention that they don't want."