(EnergyAsia, January 16 2015, Friday) –— Most oil-importing developing countries are positioned to reap “substantial” benefits benefit from the collapse in crude prices, now expected to hit six-year lows, said the World Bank.
In an analysis in its latest edition of Global Economic Prospects, the bank said it expects oil prices to remain weak through with “significant” real income transfers from oil-exporting to importing countries. For many oil-importing countries, lower prices contribute to growth and reduce inflationary, external and fiscal pressures.
“The decline in oil prices reflects a confluence of factors, including several years of upward surprises in oil supply and downward surprises in demand, receding geopolitical risks in some areas of the world, a significant change in policy objectives of the Organisation of the Petroleum Exporting Countries (OPEC), and appreciation of the US dollar,” the bank said.
Although the relative strength of the forces driving the recent plunge in prices remains uncertain, supply related factors appear to have played a dominant role.
“For policymakers in oil-importing developing countries, the fall in oil prices provides a window of opportunity to undertake fiscal policy and structural reforms as well as fund social programmes, said Ayhan Kose, the bank’s director of development prospects.
However, the bank also warned that weak oil prices present significant challenges for major oil-exporting countries, which will be adversely impacted by weakening growth prospects, and fiscal and external positions.
“If lower oil prices persist, they could also undermine investment in new exploration or development. This would especially put at risk investment in some low-income countries, or in unconventional sources such as shale oil, tar sands and deep sea oil fields,” it said.
It observed that global trade grew by less than 3.5% in 2012 and 2013, well below the pre-crisis average annual rate of 7%, holding back developing country growth in recent years.
“Weak demand, mainly in investment but also in consumer demand, is one of the main causes of the deceleration in trade growth. With high-income countries accounting for some 65% of global imports, the lingering weakness of their economies five years after the crisis suggests that weak demand continues to adversely impact the recovery in global trade,” it said.
However, long-term trends have also slowed trade growth including the changing relationship between trade and income.
Specifically, the bank said trade has become less responsive to changes in global income because of slower expansions of global supply chains and a shift in demand from trade-intensive investment to less trade-intensive private and public consumption.