1. IMF: Oil price collapse is a drag on global economy

IMF: Oil price collapse is a drag on global economy

The International Monetary Fund said today that the sharp collapse in the price of oil is proving more of a drag on the global economy than a stimulus

By: | Washington | Published: January 19, 2016 8:40 PM
IMF on fdi

The financial strains on exporters and the deep investment cutbacks in the industry are more than offsetting the expected gains from cheap oil enjoyed by key importers like Japan and the United States, the IMF said. (Reuters)

The International Monetary Fund said today that the sharp collapse in the price of oil is proving more of a drag on the global economy than a stimulus.

The financial strains on exporters and the deep investment cutbacks in the industry are more than offsetting the expected gains from cheap oil enjoyed by key importers like Japan and the United States, the IMF said.

Lower crude prices would normally stimulate some demand in countries where it is a key household and business cost, and spur more economic activity, the Fund said in its updated outlook on the world economy.

However, it said, after a 70 per cent fall in prices over 18 months, other factors have dampened the expected gains from that decline.

Firstly, it said, “financial strains in many oil exporters reduce their ability to smooth the shock, entailing a sizable reduction in their domestic demand.”

Secondly, the price fall has forced oil and gas companies to cut back investment, a negative for economic growth.

Moreover, the Fund noted that demand for oil had not picked up as the price has plummeted.

It said that factors behind that included, possibly, that cheaper crude prices were not being fully passed on to consumers, and, secondly, that businesses and consumers in some areas might still be reducing spending and debts.

The IMF report was finalized before crude prices fell some 22 per cent in the first two weeks of the year as traders prepared for Iran to return to the international market.

Even so, the IMF forecast included another 17.6 percent decline in crude prices this year after nearly 50 percent in 2015, and only a partial rebound in 2017.

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  1. K
    kushal kumar
    Jan 20, 2016 at 1:18 pm
    This Vedic astrology writer read news item a few days ago which said that IMF Chief , Christine Lagarde had opined : “ The global economy growth in year 2016 will be disappointing”. In this regard , this writer would like to say that the opinion of IMF Chief comes to the same point predicted by this writer about 18 months ago in monumental article – “ Stressful times ahead for world economy in 2015 and 2016” – published on 2 June 2014 in online magazine (blog) astrologyweekly. Briefly speaking , while the predictions made for the period ped so far in relation to gone bye year 2015 have come substantially accurate , for the coming year 2016 , this was predicted : “ However , a major cause of concern may arise in November 2015 to July 2016”. Further added : “Thus major concern could surface in global economy in first half of 2016”. Thought readers may like to know.
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