HORSE SHOE, North Carolina — The global economy has struck oil and is now growing at a pace of 3.5 percent, as suggested by the World Economic Outlook, released in early April by the International Monetary Fund. The low oil prices, which have been slashed by 50 percent since June, will foment robust, though uneven, fiscal development across the world.
U.S. horizontal drilling and hydraulic fracturing in underground shale rock has contributed largely to recent hikes in crude oil production. Compared to November 2008, fields in North Dakota and Texas produce nearly 4.3 million more barrels a day.
These low oil prices open up American markets—creating jobs, improving consumer confidence and increasing consumption. Mild budget cuts and interest rates have also spurred public infrastructure and investment, stimulating gross domestic product.
“The growth of oil production in North America, particularly in the U.S., has been staggering,” Columbia University professor Jason Bordoff said.
Though the U.S. economy is making steady gains, a hefty U.S. dollar is hindering exports.
The advanced country can handle the repercussions of its strong currency, says IMF Economic Counselor Olivier Blanchard. He suggests that the fluctuations are “good news for the world economy.”
An ocean away, the weak euro is causing a surge in European exports, mostly a side effect of the European Central Bank’s decision to purchase 60 billion euros a month in bonds through September 2016. Inflation has also been reduced by 80 percent since 2011 in the euro-zone, says Mario Draghi, head of the European Central Bank.
India too is gaining traction, with economic growth expected to surge from January’s 6.3 percent to 7.5 percent by the end of this year. Analysts suspect that the current account deficit could be eased.
Despite fiscal prosperity for many, Blanchard warns that the increased U.S. oil supply is hampering development for oil-exporting countries such as Iraq, Syria, Nigeria, Libya and Russia.
“Large movements in relative prices, whether exchange rates or the price of oil, create winners and losers,” Blanchard said.
As Russian interest rates climb to an astounding 17 percent, President Putin is shoring up for yet another recession.
The country, heavily dependent on energy revenues, loses about $2 billion for every dollar fall in the oil price. Though cutting production would augment global prices, Energy Minister Alexander Novak has confirmed that this plan of action will be avoided.
“If we cut, the importer countries will increase their production and this will mean a loss of our niche market,” he said.
The West-African country of Nigeria shares these sentiments.
A severe reduction in the country’s revenue has compelled the federal government to enact strict monetary measures in an attempt to stabilize the economy. Prompt fiscal adjustments range from surcharges on local and private jet owners to a yacht Import Adjustment Act.
While the IMF expects that some of Nigeria’s losses will be offset by reduced export prices and therefore increases in demand, passages from the World Economic Outlook also encapsulate the expected deficits.
“Key downside risks include further downgrades to growth in major trade partners, a sharper-than-expected tightening of global financing conditions and mounting domestic security threats,” the report reads.
Regardless of spotty progress, Blanchard assures that the global economy as a whole will reap the rewards of low oil prices, with growth expected to hit 3.8 percent by 2016.
– Lauren Stepp