The recent drop in oil prices should persist, helping to boost global economic activity by up to 0.7 percentage points next year, two senior IMF economists wrote in a blog yesterday.
Brent prices have fallen more than 46 percent since the year’s peak in June of above $115 per barrel, sped up by the November decision of the Organization of Petroleum Exporting Countries (OPEC) not to reduce production.
Saudi Arabia has also convinced its fellow OPEC members it is not in the group’s interest to cut oil output, however far prices may fall, the kingdom’s oil minister said.
“Overall, we see this as a shot in the arm for the global economy,” Olivier Blanchard, the IMF’s chief economist, and Rabah Arezki, head of the commodities research team, said in the blog.
The boost to the global economy would be between 0.3 and 0.7 percentage points above the Fund’s baseline world growth forecast of 3.8 percent from October.
Lower oil prices should boost China’s gross domestic product growth by 0.4 to 0.7 percentage points above the Fund’s 7.1 percent baseline estimate, assuming steady policies. In 2016, it could mean an extra 0.5 to 0.9 percentage points of growth.
For the United States, the GDP boost would be 0.2 to 0.5 percentage points above the Fund’s baseline estimate of 3.1 percent for 2015. In 2016, it could add 0.3 to 0.6 percentage points to growth.
Oil futures are down over 20 percent since the start of the month, a drop that, if sustained, would be the biggest monthly loss in four years, further evidence lower prices should persist.
The IMF economists said 65 to 80 percent of the price decline owed to supply factors, including an unexpectedly quick return to Libya’s oil production and Iraq’s steady supply.
But they said both supply and demand remain uncertain as it’s unclear what is motivating Saudi Arabia’s supply decisions and how lower oil prices could affect oil production investment.
Falling oil prices also have raised risks to financial stability, affecting banks with claims on the energy sector and the currencies of oil-importing countries. The IMF warned volatility in prices and exchange rates could prompt global risk aversion.
“Currency pressures have so far been limited to a handful of oil exporting countries such as Russia, Nigeria, and Venezuela,” the economists wrote. “Given global financial linkages, these developments demand increased vigilance all around.”
Copyright 2017 Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.