IMF warns oil prices risk tipping trade imbalances into crisis
Javier Blas, Frankfurt
April 08, 2006
HIGH energy prices are "exacerbating" global economic imbalances and
increasing risks of a crisis, the International Monetary Fund will warn
next week.
The IMF will say in its World Economic Outlook report that "global
current account imbalances are likely to remain at elevated levels for
longer than would otherwise have been the case, heightening the risk of
sudden disorderly adjustment".
A draft of the second chapter of the report was obtained by Expansion,
the Financial Times's Spanish partner paper.
High oil prices are increasing the US trade deficit, the report says.
Also, the recycling of petrodollars is driving down interest rates
providing an unsustainable boost to US private consumption.
The IMF estimates that oil prices explain half of the deterioration of
the US current account deficit between 2002 and 2005. In that period,
the deficit rose 2 percentage points, to a record 6.5 per cent of gross
domestic product.
IMF managing director Rodrigo Rato warned this week that "good economic
performance rests on a shaky foundation, because of large and
continuing global imbalances". The US current account deficit was
forecast to increase again in 2006, Mr Rato said, partly because of the
impact of high energy prices.
Washington has blamed surpluses in Japan as well as in emerging Asian
countries, particularly China, for its current account problems. But
the IMF's focus on oil prices and global imbalances shows that the
issue has grown in complexity.
Mr Rato has called for a "multilateral" approach to resolve the global
imbalances as he warned the "risk is that global imbalances will be
unwound in an abrupt and disorderly way".
"If a disorderly adjustment does take place, it will be very costly and
disruptive to the world economy," he said this week.
The report says that as "authorities in fuel-exporting countries are
being somewhat more cautious in increasing spending, even though market
expectations indicate that the current energy price shock is likely to
prove more persistent than in the 1970s". Some of the revenue is being
invested in bond markets, helping to keep long-term interest rates
down, it concludes.
The IMF said the impact is hard to detect because of a lack of data,
but it estimates that petrodollar flows may have reduced long-term
interest rates by 30 basis points.
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