São Paulo – The International Monetary Fund (IMF) has revised down its growth projection for the global economy in 2015 and 2016. According to an update of the World Economic Outlook report (WEO), released this Tuesday (20th), the global Gross Domestic Product (GDP) should be up 3.5% this year and 3.7% in the next one. The organization has lowered both estimates by 0.3% from the last edition of the survey, issued in October 2014.
According to the report, the world economy will get a boost from falling oil prices, but other factors should detract from economic activity. One such factor is the low investment levels expected. “The United States is the only major economy for which growth projections have been raised,” the report reads.
Other potential hazards include the oil market, despite the low prices, international financial market volatility, stagnation and lower-than-expected inflation in the Eurozone and Japan.
According to the IMF, oil prices in US dollars are down 55% since September 2014. The Fund ascribes this fact to weaker-than-expected demand for the commodity, but most of all to the decision of the Organization of Petroleum Exporting Countries (Opec) to maintain production levels in spite of rising oil extraction by non-Opec countries, notably the United States.
Theoretically, cheaper oil frees up cash for oil-importing countries to spend elsewhere. This, however, should primarily benefit developed countries, where the effects are expected to trickle down to consumers to a greater extent. In developing countries, the advantages will be mostly reaped by governments, as they will be able to pare down fuel subsidies and spend the money on improving public finances.
Still, the IMF wagers that oil prices will rebound over the next few years, since low prices will likely stem the flow of investment to industry, jeopardizing its ability to grow. In other words, the demand will eventually outgrow the supply.
On justifying its grimmer forecasts, the Fund claims that the world economy did grow as expected in quarter three last year, by 3.75%, against 3.25% in the preceding quarter, but that said growth “masked up” a stark contrast between the leading economies, and the United States recovered at a stronger rate than expected, thereby skewing results.
To illustrate this rather uneven growth scenario, the report remarks that the US dollar has appreciated by 6% in real terms since October, whereas the euro and the Japanese yen have depreciated by respectively 2% and 8%. The same holds true of several emerging economies. In Brazil, for instance, the dollar is up nearly 6.6% now from October 1st 2014.
Generally speaking, and according to economic counselor and IMF’s survey director Olivier Blanchard, this scenario of inconsistent performances by different economies, or “cross-currents” – the title of the publication released this Tuesday –means “good news" to importers of oil and other commodities and “bad news" to exporters of these products. It also means the continuation of difficulties for countries still suffering the effects of the crises that hit since 2008, besides a more positive scenario for the nations “closely linked to the yen and euro” and more negative to “those more closely linked to the dollar”.
One other factor that depresses growth, according to the organization, is the increase of interest rates and bank spreads, which happened in a lot of emerging countries, including Brazil.
The IMF forecasts that the developing and emerging countries should grow 4.3% in 2015 and 4.7% in 2016. This year’s estimation was reduced in 0.6%, and for the next year in 0.5%. The Fund expects lower growth in China, Russia, Brazil and other emerging economies. In the developed nations, growth expectations are at 2.4% in both years. There was an improvement of 0.1% for 2015 and steadiness for 2016.
Brazil
In the Brazilian case, for instance, the GDP growth projection is for only 0.3% for this year and 1.5% for the next. The forecast for 2015 was decreased in only 1.1%, and 0.7% for 2016. In the foreign trade sector, Brazil is a large commodity exporter – and not only oil, but a lot of other products in this category, such as iron ore and sugar, which were affected by weak global demand.
Among oil exporters, those with major estimated reserves and low production costs will be able to avoid radical cutbacks in investments because price reduction, as is the case with Arab countries from the Gulf Cooperation Council (GCC), but other producing nations with less fiscal space, especially in Africa, should face budget problems and, as a result, a more modest growth.
*Translated by Gabriel Pomerancblum and Sérgio Kakitani