Wed, Dec 03, 2014 - Page 15 News List

Oil prices good for world, bad for Russia: IMF head

OVERALL BENEFITS:Christine Lagarde said a 30 percent drop in oil prices equals a 0.8 percent boost in growth for ‘most advanced economies,’ and 0.6 percent for the US

Bloomberg

The drop in oil prices is set to provide a net boost to the global economy while posing risks for energy-producing nations including Russia, IMF managing director Christine Lagarde said.

“On a net-net basis, it is probably good for the global economy,” Lagarde, speaking in Washington on Monday, said in her first comments on last month’s 18 percent decline in crude prices.

“[For Russia, the drop is a] significant threat [that] is adding to their fragility and their vulnerability, and they know it. It remains to be seen what the reaction will be,” she said.

The remarks illustrate the benefits and dangers from surging US oil production that is reshaping the world’s geopolitical landscape amid a weaker-than-anticipated global recovery.

A 30 percent decline in oil prices translates into an 0.8 percent boost in growth for “most advanced economies” and “probably 0.6 percent for the US,” Lagarde said.

While exporters might be taking a hit, “it’s a net booster on an aggregate basis,” Lagarde said at the Wall Street Journal CEO Council conference.

Oil and gas provide 68 percent of Russia’s exports and 50 percent of its federal budget. Russia has already lost almost US$90 billion of its currency reserves this year, equal to 4.5 percent of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine. The ruble is down about 35 percent against the US dollar since June.

Lagarde said she recently told an audience in Kuwait that nations in the Middle East should be prepared to run fiscal deficits. Venezuela and small African nations would also be among those hit hard, Lagarde said.

The IMF might be called upon to help smaller nations that rely on oil exports, she said.

Regarding Ukraine, she said that “a lot more financing is going to be needed” to support a government “that is serious about reforming the country.”

Lagarde has previously said that residual debt from the financial crisis and high unemployment is threatening to relegate the global economy to a sustained period of underwhelming growth, a risk she terms the “new mediocre.”

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