Falling oil prices not helping economies, says IMF

Though a decline in oil prices driven by higher oil supply should support global demand given a higher propensity to spend in oil importers relative to oil exporters, several factors have dampened the positive impact of lower oil prices, the International Monetary Fund said.

The Fund said in its latest update to the World Economic Outlook that financial strains in many oil exporters have reduced their ability to smoothen the shock, entailing a sizable reduction in their domestic demand.

The oil price decline has had a notable impact on investment in oil and gas extraction, also subtracting from global aggregate demand, it said.

Finally, the pickup in consumption in oil importers has so far been somewhat weaker than evidence from past episodes of oil price declines would have suggested, possibly reflecting continued deleveraging in some of these economies.

“Limited pass-through of price declines to consumers may also have been a factor in several emerging market and developing economies,” the IMF said.

Lower oil prices strain the fiscal positions of fuel exporters and weigh on their growth prospects, while supporting household demand and lowering business energy costs in importers, especially in advanced economies, where price declines are fully passed on to end users.

Oil prices have declined markedly since September 2015, reflecting expectations of sustained increases in production by Organization of the Petroleum Exporting Countries (OPEC) members amid continued global oil production in excess of oil consumption, the report said.

 

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