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Low oil prices 'will help growth'

Published 14/04/2015

The IMF forecast for UK growth this year remains at 2.7%
The IMF forecast for UK growth this year remains at 2.7%

Low oil prices will help sustain steady growth in the UK and other advanced economies but at the same time they face a threat from low inflation and stagnation, the International Monetary Fund (IMF) said today

In its latest World Economic Outlook, the IMF predicted world growth of 3.5% this year, unchanged from its previous projection in January. Its forecast for UK growth this year remains at 2.7% though for next year it is cut from 2.4% to 2.3%.

It said: "In the United Kingdom, lower oil prices and improved financial market conditions are expected to support continued steady growth."

The IMF said global expansion this year "will be driven by a rebound in advanced economies supported by the decline in oil prices". But global prospects were "uneven" with growth slipping back in emerging economies.

There would be weaker activity for some major oil exporters, with the Russian economy - also hit by tensions over Ukraine - expected to shrink by 3.8% this year, worse than the previously estimated 3%.

The IMF said that while risks to global growth "are now more balanced" than six months ago, they "remain tilted to the downside".

These included the danger of low inflation in countries saddled by high debt, with the warning coming on the same day that official figures showed inflation falling to minus 0.01% in the UK.

IMF chief economist Olivier Blanchard said: "A number of complex forces are shaping the prospects around the world.

"Legacies of both the financial and euro area crises - weak banks and high levels of public, corporate, and household debt - are still weighing on spending and growth in some countries."

The outlook for the US this year has been slashed by 0.5% to 3.1% while for the eurozone it has been upgraded from 1.2% to 1.5%, helped by low oil prices and a weaker single currency amid a 1.1 trillion euro (£790 billion) stimulus programme.

The IMF still said conditions were ripe for "robust US economic performance in 2015" but pointed to risks such as the strong dollar hitting exports and the low oil price suppressing investment in that sector.

It said macroeconomic risks to global growth, such as a recession in the eurozone, had slightly decreased, but that financial and geopolitical risks had increased.

The latter included below-target inflation in countries with high debt and low growth since the financial crisis, with little room to provide more monetary stimulus.

The report said: "Stagnation and low inflation in advanced economies, notwithstanding the recent upgrade to the near-term growth forecasts for some of these economies, could hamper the recovery."

It said prospects for some economies were "clouded" by ageing populations, weak investment and lacklustre productivity growth as well as high debt both among governments and in the private sector.

The report added: "Inflation and inflation expectations in most advanced economies are below target and are in some cases still declining - a particular concern for countries with crisis legacies of high debt and low growth, and little or no room to ease monetary policy."

Financial risks could also include a further surge in the US dollar and strong market reactions as "accommodative" monetary policies supporting recovery - such as low interest rates and money printing - start to be withdrawn.

Geopolitical risks included tensions "stemming from ongoing events in Ukraine, the Middle East and West Africa" which "could generate regional and global spillover".

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