[A-List] IMF: worried about oil
michael.keaney at mbs.fi
Thu Sep 30 00:48:48 MDT 2004
Soaring oil prices sound alert for the global economy
By Philip Thornton
The Independent, 30 September 2004
Record oil prices are sending an urgent "wake up call" to the world to take
action to boost production or cut energy use to prevent a global economic
slowdown, the International Monetary Fund said yesterday.
The world's leading financial watchdog raised its forecast for world growth
this year to a three-decade high but pencilled in a slowdown for next year.
The world economy will expand by 5.0 per cent this year before slowing to
4.3 per cent next year, a downward revision of 0.1 percentage points from
its spring forecasts. The IMF's chief economist, Raghuram Rajan, said: "The
balance of risks has shifted to the downside with further oil-price
volatility a particular concern. While it would be alarmist to see this as
the first resource crisis of the 21st century, it's certainly a wake up
He said it would not be possible for households in China and India, the
fastest growing developing countries, to consume energy "as much and as
inefficiently as the average suburban American household". He said oil
markets had been hit by a global recovery, a red hot Chinese boom, terrorist
attacks on oil supplies and a shortage of refining capacity.
"The sharp rise in oil prices has contributed to the weakening of the
expansion in recent months and will likely continue to do so for several
quarters," he said. "This underscores the need to reduce vulnerability
through concerted measures to restrain the growth of oil demand and through
investment in capacity expansion in oil-producing countries."
The fund was keen, however, to play down the impact of rising oil prices,
saying it would be "moderate", especially compared with the oil-fuelled
recession of the mid-1970s.
It said if the recent $8 a barrel rise in prices were sustained for a year,
it would wipe about 0.5 of a percentage point off growth. But it said the
scale of price rises had been less sharp and rapid than in the past, adding
that rich countries were less dependent on oil than in the past. The IMF
added that a slowdown or even a crash in the Chinese economy would actually
be beneficial. David Robinson, its deputy research director, said: "I would
have thought that it would be modestly helpful if China slowed as demand for
oil would be coming down and so, presumably, the pressure on oil prices
would tend to decline."
The IMF played down fears that a Chinese crash could pole-axe the global
economy, saying even a 10 per cent fall in imports would only knock 0.3 of a
point off growth. It repeated its pleas to the US and the eurozone to take
advantage of the global upturn to reduce their fiscal deficits in the light
of the looming problem of the retirement of the babyboom generation. Mr
Rajan said: "Without further action there is a serious risk of shortfalls in
many regions, leaving the world significantly more vulnerable to the shocks
it will inevitably face in the future."
The US is forecast to grow by 4.3 per cent this year and 3.5 per cent next
year, a cut of 0.3 of a percentage point from the IMF's forecasts in the
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