IMF: Global growth to decrease despite drop in oil prices

Although global growth does receive a boost from lower oil prices, it is more than offset by negative factors in many advanced and emerging market economies, the International Monetary Fund (IMF) indicated in it World Economic Outlook (WEO).
Global growth in 2015-16 is now projected at 3.5 and 3.7 percent, a downward revision of 0.3 percent from the October 2014 WEO. "The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices," said the update, released late Monday.
Since September oil prices have declined by about 55 percent in US dollars. "But the much larger decline in oil prices suggests an important contribution of oil supply factors, including the decision of the Organization of the Petroleum Exporting Countries (OPEC) to maintain current production levels despite the steady rise in production from non-OPEC producers, especially the United States," noted the IMF.
Additionally, while global growth increased as expected to 3.75 percent in the third quarter, the report highlights divergences among major economies. The US is the only major economy with a raised growth projection and while other major economies, most notably Japan, "fell short of expectations." The US dollar has since appreciated six percent while the euro and the yen have depreciated by about two and eight percent, respectively.
The update said, "Interest rates and risk spreads have risen in many emerging market economies, notably commodity exporters, and risk spreads on high-yield bonds and other products exposed to energy prices have also widened." Additionally, "Long-term government bond yields have declined further in major advanced economies, reflecting safe haven effects and weaker activity in some." The IMF asserted that there is "sizable uncertainty" about the oil price path in the future and "the underlying drivers of the price decline has added a new risk dimension to the global growth outlook." On the upside, the IMF believes the boost to global demand could be greater than is currently factored in the projections. Yet oil prices could also rebound sooner than expected if the supply response is stronger than forecasted.
In regards to policy, the report noted, "there is an urgent need for structural reforms in many economies, advanced and emerging market alike, while macroeconomic policy priorities differ.
"Oil exporters, for which oil receipts typically contribute to a sizable share of fiscal revenues, are experiencing larger shocks in proportion to their economies," it added.
The global economic impact depends on how large the oil supply shifts are expected to be. "The more persistent they are, the more consumers and firms will adjust consumption and production," the report added.