Eco­nomic boost from oil prices un­likely un­til rates rise: IMF

The Pak Banker - - FRONT PAGE -

NEW YORK: The slump in oil prices is un­likely to boost the world econ­omy un­til in­ter­est rates start to rise - by which time the com­mod­ity may have re­cov­ered some­what any­way, the In­ter­na­tional Mone­tary Fund (IMF) said on Thurs­day.

The fund and many econ­o­mists had be­lieved that the 65 per­cent col­lapse in oil prices would be a net pos­i­tive for the world econ­omy, with gains to com­mod­ity-im­port­ing coun­tries off­set­ting ex­porters' losses. How­ever, the pos­i­tive im­pact on con­sump­tion in ad­vanced oil-im­port­ing economies such as the euro zone has been less than forecast.

"The widely an­tic­i­pated 'shot in the arm' for the global econ­omy has yet to ma­te­ri­al­ize. We ar­gue that, para­dox­i­cally, global ben­e­fits from low prices will likely ap­pear only af­ter prices have re­cov­ered some­what and ad­vanced economies have made more progress sur­mount­ing the cur­rent low in­ter­est rate en­vi­ron­ment," Maurice Ob­st­feld, Gian Maria Milesi-Fer­retti and Rabah Arezki said in an IMF blog post.

Brent and WTI light crude futures ap­pear to have bot­tomed at $40 per bar­rel for the time be­ing, hav­ing fallen be­low $30 in Jan­uary. Prices have con­tin­ued to re­cover since Fe­bru­ary, but re­main far off the av­er­age of around $110 per bar­rel reached be­fore prices be­gan tum­bling more than a year and a half ago. A pe­riod of slow eco­nomic growth be­fore oil prices started fall­ing meant ma­jor cen­tral banks had al­ready low­ered in­ter­est rates al­most as low as pos­si­ble, the blog's au­thors said. The banks were then un­able to make fur­ther cuts to com­bat de­fla­tion­ary pres­sures re­sult­ing from lower pro­duc­tion costs due to the de­cline in oil. The de­cline in in­fla­tion thus raised the real in­ter­est rate (the nom­i­nal rate ad­justed for in­fla­tion), soft­en­ing de­mand and pos­si­bly sti­fling an in­crease in out­put or em­ploy­ment, the IMF said.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.