IMF sees uncertainty about path of oil prices

IMF sees uncertainty about path of oil prices

IMF sees uncertainty about path of oil prices

AFP Photo

Uncertainty over the future path of oil prices could throw a wrinkle into the International Monetary Fund’s predictions for the global economy, its staff said in a note on Feb. 6.

On the one hand, lower oil prices could persist and boost global demand more than it foresaw last month, when the IMF cut its global growth forecast to 3.5 percent for this year.

At the same time, low crude prices could still force firms or governments to cut back on supply, nudging prices higher and faster than expected, the IMF said.

The outlook for petroleum prices, which have decreased more than 50 percent in the last seven months, is likely to form the backdrop for the ministerial meeting of the Group of 20 major economies in Istanbul next week.

While the United States is one of the few bright spots in the world economy, and the U.S. Federal Reserve plans to start raising interest rates around midyear, other central banks have launched renewed rounds of monetary stimulus, in part due to fears of deflation from falling oil prices.

In a note prepared for the G-20, the IMF cautioned the Fed to not put too much weight on the impact of cheap oil, unless it causes long-term changes to inflation expectations, and instead focus on its primary inflation and employment goals.

But the IMF repeated its warning that divergent monetary policies around the world could still lead to spikes in volatility and sharp capital outflows from emerging markets, especially from oil-exporting countries that have become more vulnerable as crude prices have fallen.

IMF Managing Director Christine Lagarde said a stronger U.S. dollar also raises risks.

“Emerging market economies are especially vulnerable because, over the past five years, many of their banks and companies have increased their borrowing in dollars,” she wrote in an accompanying blog post.

The Fund last month said the positive boost from low oil prices failed to make up for lower potential growth in major economies, including Japan and the euro zone.

The IMF urged countries to pursue deeper reforms to raise their growth path, including wide-ranging trade agreements. But it warned G20 countries not to let regional agreements like the 12-nation Trans-Pacific Partnership take over the global trade policy agenda and leave some countries out in the cold.