According to the International Monetary Fund, the global economy is firmly on the mend in 2011 but faces rising headwinds, particularly from higher oil prices.
The IMF said that its latest world economic forecasts were little changed from a January update, 4.4% global growth in 2011 ticking down from 5.0% in 2010. A two speed recovery from the 2009 global recession was expected to continue apace, with emerging market and developing economies expanding at 6.5% clip and the advanced economies mustering only 2.4% growth.
It said that the key downside risk to growth relates to the potential for oil prices to surprise further on the upside because of supply disruptions. The Washington based institution’s growth forecasts assumed an average oil price of USD 107 per barrel in 2011 after USD 79 in 2010.
IMF said that new downside risks are building on account of commodity prices, notably for oil and relatedly, geopolitical uncertainty as well as overheating and booming asset markets in emerging market economies.
Surging oil prices have sparked fears of a return to the record levels above USD 147 seen in 2008 when high food and commodity prices sparked political unrest in some countries.
Mr Olivier Blanchard chief economist of IMF stressed that the recent oil price rise was not expected to have major effects on either growth or inflation. My own view is that there is not any major downside risk at this point in the world economy in the way there was a year or two ago but there are reasons to worry.
The report’s authors however underlined the difficulty in forecasting a market that has been under the sway of revolts in the Middle East and North Africa region since the beginning of the year. The outlook for oil markets remains quite uncertain as perceptions of geopolitical supply risks can be volatile.
China and other emerging market powerhouses such as India and Brazil were driving the strong demand for commodities. But the IMF also pointed to a sluggish production response by the Organization of the Petroleum Exporting Countries when prices moved above the USD 70 to USD 80 range which the cartel previously had called a fair range. The lack of response by the cartel that produces about 40 per cent of the world’s oil supply has led to some uncertainty in markets about OPEC producers’ implicit price targets.
(Sourced from AFP)
