Cheap Oil Fueling Global Growth. Now If We Just Had Roads And Bridges

April 14, 2015

The global economy won’t sink this year, thanks to the oceans of cheap oil keeping it afloat.

That’s the bottom line of the World Economic Outlook, released Tuesday by the International Monetary Fund. The 2015 pace of economic growth will tick up to 3.5 percent, helped along by lower energy costs and weaker currencies.

The world’s economic expansion is “modest and uneven,” IMF economist Olivier Blanchard said. But still, it’s a bit better than the 3.4 percent pace of growth set during each of the past two years.

Since June, oil prices have tumbled by about 50 percent. At the same time, a rebounding U.S. economy has pushed up the value of the dollar, allowing other countries to benefit from having cheaper currencies.

“Large movements in relative prices, whether exchange rates or the price of oil, create winners and losers,” Blanchard said. That means oil-producing countries, especially Russia, are getting hurt, but many oil-importing countries in Europe and Asia are doing better, he said.

What’s the one thing that would boost growth for everyone?

“More public investment,” Blanchard said. Countries do need to reduce their budget deficits, but at the same time, they need to build a lot more infrastructure, he said. That would mean building more roads, bridges, ports and airports, which would create jobs and increase future economic activity.

What’s the one thing that could hurt everyone?

The IMF fears “a cascade of disruptive adjustments” if the U.S. Federal Reserve were to raise interest rates quickly and significantly.

The world’s economic prospects will be hashed over later this week when global leaders gather for the IMF and World Bank annual spring meetings, held in Washington, D.C.

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