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Oil Price collapse proving drag for global economy: IMF

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The International Monetary Fund said today that the sharp collapse in the price of oil is proving more of a drag on the global economy than a stimulus.

The financial strains on exporters and the deep investment cutbacks in the industry are more than offsetting the expected gains from cheap oil enjoyed by key importers like Japan and the United States, the IMF said.

Lower crude prices would normally stimulate some demand in countries where it is a key household and business cost, and spur more economic activity, the Fund said in its updated outlook on the world economy.

However, it said, after a 70 per cent fall in prices over 18 months, other factors have dampened the expected gains from that decline.

Firstly, it said, “financial strains in many oil exporters reduce their ability to smooth the shock, entailing a sizable reduction in their domestic demand.”

Secondly, the price fall has forced oil and gas companies to cut back investment, a negative for economic growth.

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