Ukraine risk reins in IMF outlook
The International Monetary Fund (IMF) still expects stronger global economic growth this year and next in its latest World Economic Outlook (WEO), but turmoil in Ukraine poses risks, according to Argus Global Markets. The IMF expects the global economy to grow by 3.6% this year and by 3.9% in 2015, up from 3% in 2013 (see Table). ‘Put simply, the recovery is strengthening,’ IMF Director of Research Olivier Blanchard said.
The IMF’s forecasts are down slightly from its estimates in January. Rising geopolitical risks have not yet had global macro-economic implications. However, the Crimean crisis has taken a toll on the Ukrainian and Russian economies, as well as having negative effects on other parts of the former Soviet Union. The IMF projects that Russia’s economy will grow by 1.3% this year, the same as in 2013 but slower than it would have been without its annexation of Crimea in March and the subsequent US and European Union (EU) sanctions. Russia can anticipate ‘substantial’ capital outflows as investors demonstrate their concern over the crisis, according to Blanchard. However, Russia has sizeable cash reserves, and should be able to withstand those capital movements.
Economic ramifications of the crisis could radiate out from the immediate region if sanctions and retaliatory measures make investors more risk averse or affect trade and finance. ‘Greater spillovers could emerge from major disruptions in production or the transportation of natural gas or crude,’ the WEO said. Stronger growth in advanced economies is buoying the global economy overall. ‘The recovery is strongest in the US, without much question,’ commented Blanchard. The US economy will expand by 2.8% this year and by 3% in 2015, according to the WEO study. The UK – where Blanchard concedes the IMF ‘clearly underforecast’ – will post 2.9% GDP growth this year and Germany 1.7% growth.
Developing countries are expected to grow only ‘modestly’ as investors steer clear of possible vulnerabilities. The IMF expects China’s economic growth, which has driven much of the world’s recovery since the Great Recession, to slow to 7.5% this year, down modestly from 7.7% in 2013.
The WEO assumes world oil prices – a mix of Brent, Dubai and WTI futures prices – will average $104.17/b this year and drop to $97.92/b in 2015, compared with $104.07/b in 2013. The WEO suggests ‘it could be useful to employ several forecasting methods to hedge’ oil prices, noting the ‘considerable’ uncertainty involved in the forecasts. Rising non-OPEC production ‘could presage a change in the oil market configuration compared with that prevailing over the past two decades’. However, all the models suggest ‘flat to falling oil prices,’ according to the WEO.
News Item details
Journal title: Petroleum Review
Countries: Ukraine - Russian Federation - Crimea -
Subjects: Natural gas, Reserves
