Poor mineral and crude oil prices to cut growth, says IMF report

Thursday January 21 2016

National Treasury CS Henry Rotich (centre), PS Kamau Thugge (right) and International Monetary Fund (IMF) resident representative Armando Morales (left) during the official opening of the public hearings for the financial year 2016/17 on November 18, 2015 at the Kenya Institute of Curriculum Development. Lower prices of minerals and crude oil will slow down global economic growth this year according to the latest edition of the World Economic Outlook report prepared by the IMF. PHOTO | DIANA NGILA |

National Treasury CS Henry Rotich (centre), PS Kamau Thugge (right) and International Monetary Fund (IMF) resident representative Armando Morales (left) during the official opening of the public hearings for the financial year 2016/17 on November 18, 2015 at the Kenya Institute of Curriculum Development. Lower prices of minerals and crude oil will slow down global economic growth this year according to the latest edition of the World Economic Outlook report prepared by the IMF. PHOTO | DIANA NGILA | NATION MEDIA GROUP

By IMMACULATE KARAMBU
More by this Author

Lower prices of minerals and crude oil will slow down global economic growth this year, with most economies within the sub-Saharan Africa region expected to expand at rates lower than those seen over the past decade.

The latest edition of the World Economic Outlook report prepared by the International Monetary Fund (IMF) has also cut down the forecast for global economic growth by 0.2 percentage points to 3.4 per cent this year and 3.6 per cent next year.

Economic expansion is expected to be gradual in emerging and developing markets, which on average are projected to grow by 4.3 and 4.7 per cent in 2016 and 2017, from 4 per cent last year, which is the lowest since the 2009 financial crisis.

“This reflects the continued adjustment to lower commodity prices and higher borrowing costs which are weighing heavily on some of the region’s (sub-Saharan Africa) largest economies,” says the report.

NEGATIVE IMPACT

Commodity prices have been on a downward trend with oil prices currently below $30 a barrel, due to sustained production by members of the Organisation of Petroleum Exporting Countries (Opec).

This has negatively affected growth in oil exporting countries such as Angola and Nigeria, and other commodity exporters such as South Africa.

IMF expects the negative impact of the low crude prices to outweigh gains in net oil importers such as Kenya where oil and gas exploration is underway as it will discourage further investment.

The Bretton Woods institution also says that due to lack of adequate pass-through of oil price declines to consumers, local demand may also be curtailed, further compounding the situation.

“The oil price decline has had a notable impact on investment in oil and gas extraction, also subtracting from global aggregate demand,” reads the report.

Crude prices have fallen by more than 60 per cent since mid-2014.

Analysts predict that the free fall could continue into the year as demand from China weakens owing to the expected slowdown in growth of the Asian economy.

The IMF predicts that China’s growth will slow to 6.3 per cent this year and fall to 6 per cent in 2017.