KUALA LUMPUR (Dec 23): A new Internation Monetary Fund (IMF) blog has suggested that the plunge in crude oil price to be a shot in the arm for the global economy.

In a blog Dec 22, the IMF’s Senior Economist Rabah Arezki and Economic Counsellor Olivier Blanchard said they found a gain for world DGP between 0.3% and 0.7% in 2015, compared to a scenario without the drop in oil prices.

The duo however qualified their findings by adding that there was much more to this complex and evolving story.

They said they examined the mechanics of the oil market now and in the future, the implications for various groups of countries as well as for financial stability, and how policymakers should address the impact on their economies.  

Summarising their findings, Arezki and Blanchard said they found both supply and demand factors had played a role in the sharp price decline since June.

“Futures markets suggest that oil prices will rebound but remain below the level of recent years. There is however substantial uncertainty about the evolution of supply and demand factors as the story unfolds,” they said.

According to the blog, while no two countries will experience the drop in the same way, they shared some common traits, namely that oil importers among advanced economies, and even more so emerging markets, stand to benefit from higher household income, lower input costs, and improved external positions.

They said oil exporters would take in less revenue, and their budgets and external balances will be under pressure.

“Risks to financial stability have increased, but remain limited. Currency pressures have so far been limited to a handful of oil exporting countries such as Russia, Nigeria, and Venezuela. Given global financial linkages, these developments demand increased vigilance all around.

“Oil exporters will want to smooth out the adjustment by not curtailing fiscal spending abruptly. For those without savings funds and strong fiscal rules, budgetary and exchange rate pressures may, however, be significant. Without the right monetary policies, this could lead to higher inflation and further depreciation,”they said.

Arezki and Blanchard said the fall in oil prices provides an opportunity for many countries to decrease energy subsidies and use the savings toward more targeted transfers, and for some to increase energy taxes and lower other taxes.  

“In the euro area and Japan, where demand is weak and conventional monetary policy has done most of what it can, central banks forward guidance is crucial to anchor medium term inflation expectations in the face of falling oil prices,” they said.