Dubai — Oil prices will average $35/b in 2020 as the global economy contracts 3% in the worst deterioration in economic conditions since the Great Depression in a best-case scenario and stay around that level for 2021, the International Monetary Fund said Tuesday in its World Economic Outlook.
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In its January report, the fund assumed an oil price of $58.03/b in 2020, and $55.31/b in 2021.
Oil prices are currently trading below the fund's forecast despite the OPEC+ group agreement on Sunday to cut a record 9.7 million b/d in May and June this year and gradually decrease cuts through April 2022.
"The promised reduction in supply will help stabilize the market," deputy director of the fund's research department Gian Maria Milesi-Ferretti told a press conference on the report.
However future prices are unlikely to return to pre-coronavirus levels, the report said.
"Futures markets indicate that oil prices will remain below $45/b through 2023, some 25% lower than the 2019 average price, reflecting persistently weak demand," the report said. "These developments are expected to weigh heavily on oil exporters with undiversified revenues and exports -- particularly on high-cost producers -- and compound the shock from domestic infections, tighter global financial conditions, and weaker external demand."
Oil exporters in general will see their growth shrink 4.4% in 2020 due to the crude price crash, the report said. Oil exporters in the Middle East, and Central Asia region will see their economies contract 3.9%, with Saudi Arabia's GDP shrinking 2.3%, the UAE 3.5% and Iraq 4.7%.
'Worse outcomes possible'
The fund, which had projected a 3.3% growth in 2020 only in January, said the 3% contraction scenario was based on the pandemic subsiding in the second half of 2020.
"Much worse growth outcomes are possible and maybe even likely," the IMF's Economic Counsellor, Gita Gopinath said in a foreword for the report. "This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment."
The fund was ready to use its $1 trillion in available financial resources to help member countries cope with the coronavirus outbreak, which is set cost the global economy a cumulative output loss in 2020 and 2021 estimated at $9 trillion, Gopinath told the press conference broadcast on the fund's website.
"Some aspects that underpin the rebound may not materialize, and worse global growth outcomes are possible -- for example, a deeper contraction in 2020 and a shallower recovery in 2021 -- depending on the pathway of the pandemic and the severity of the associated economic and financial consequences," the report said.
Advanced economies will bear the brunt of the economic recession, by shrinking 6.1%, led by a 7.5% contraction in the eurozone and 5.9% contraction in the US.
"In parts of Europe, the outbreak has been as severe as in China's Hubei province," the report said. "Although essential to contain the virus, lockdowns and restrictions on mobility are extracting a sizable toll on economic activity. Adverse confidence effects are likely to further weigh on economic prospects."
Emerging economies will suffer less and shrink by 1%, with China's growth rate slashed to 1.2% in 2020 from 6.1% in 2019.
The global economy is expected to recover in 2021 if the pandemic fades in 2021, where growth will rebound to 5.8% "as economic activity normalizes, helped by policy support."
"A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound," Gopinath said.
The advanced economy group is forecast to expand 4.5% in 2021, while growth for the emerging market and developing economy group is forecast at 6.6%.
By comparison, in 2010 global growth rebounded to 5.4% from a 0.1% contraction in 2009.
"The rebound in 2021 depends critically on the pandemic fading in the second half of 2020, allowing containment efforts to be gradually scaled back and restoring consumer and investor confidence," the report said.