São Paulo – Cheap oil could serve as the good news needed for the majority of G20 countries – the group formed by the largest world economies – to promote internal reforms to stimulate the economic development and spending control. The report “Global Prospects and Policy Challenges” released this Friday (06th) by the International Monetary Fund (IMF) states that other factors, however, offset the benefits that the decline of oil prices could generate. Among these factors is the drag in investment associated with diminishing medium term growth prospects.
As a result, the report itself revised down the estimate of countries’ growth in 0.25% in 2015 and 2016. Thus, the forecast for the Gross Domestic Product (GDP) of these countries now points to a 3.5% growth this year and 3.7% in the next.
Among the challenges, the report lists the risk of deflation in the Euro Zone and in Japan and states that the asset purchase program launched by the European Central Bank (ECB) to increase liquidity is “welcome”. In the case of the G20’s emerging countries, the Fund notes that the currencies of some of them are in a depreciation process. The emerging countries are also facing a steep drop in revenues from commodities exports, factors that directly affect income and demand.
In general, the Fund says that the outlook for emerging countries’ economies is now “weaker” than what was envisaged in last year’s October because oil price is down as are the prices of other commodities. “In particular, the growth forecast for Latin America has been reduced. Although some commodity exporters, notably Saudi Arabia, are expected to use fiscal buffers, the room for monetary or fiscal policy support in some other exporters is more limited”, says the report.
The forecast is for the Brazilian economy to grow 0.3% this year and 1.5% in 2016, with a downward revision of 1.1% for 2015 and 0.7% for 2016. Saudi Arabia should grow 2.8% and 2.7%, respectively, but also with a downward revision of 1.6% for 2015 and 1.7% for 2016.
Suggestions
The IMF says, however, that in all of the countries of the bloc it’s necessary to implement “strong” policies to promote growth and mitigate the risks of economic development. The Fund advises the stimulus to infrastructure expansion in developed countries with this need and that have to fill production deficits. It quotes, as an example, the United States and Germany.
For the emerging countries, the solutions presented vary. In the case of Brazil, India, Turkey and South Africa, the Fund advises to keep the fiscal consolidation already underway as means of reducing deficits and inflation. For Brazil, India and South Africa, it also advises for them to invest in infrastructure to eliminate bottlenecks. Others, such as oil exporters, will need to improve their monetary system to avoid the depreciation of their currency and high inflation.
To emerging countries in general, the Fund advises an energy reform to eliminate subsidies in fuel purchases and then use these savings in “more targeted transfers” and to lower budget deficits.
The G20 group includes Australia, Argentina, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, South Africa, Saudi Arabia, Spain, Turkey, United Kingdom and United States.
*Translated by Sérgio Kakitani
