Lipsky pessimistic on global growth

Bloomberg

"Global growth is not expected to recover any time soon to the rapid pace achieved in 2003-07, as the financial crisis will have lasting effects on credit and capital flows," Lipsky said in the text of a speech in Vienna. "In particular, economic growth in emerging and developing economies is unlikely to return quickly to the very high rates seen during 2003-07."

Lipsky, speaking to a conference of the Organization of Petroleum Exporting Countries, said prices probably won’t soon return to the record set in July of $147.27 a barrel. OPEC agreed to hold output targets steady at its meeting in Vienna on March 15 on concern higher prices could harm an ailing global economy.

"Oil demand today appears likely to grow at a more modest rate over the next five years or so compared to the path projected only 9 to 12 months ago," he said. "We still expect prices to rise as the global economy recovers, although not at the dramatic pace recorded in 2007 and first half of 2008."

Inflation in advanced economies is forecast to drop this year to a record-low of 0.25 percent, from 3.5 percent in 2008, Lipsky said. In emerging and developing economies, inflation may decline to 5.75 percent this year and 5 percent in 2010, from 9.5 percent last year, he said.

"The fall in inflation has created much-needed room for monetary policy easing," Lipsky said.

Lipsky said IMF analysis of short-term price swings in recent years indicates that speculators have had an impact on behavior in oil markets.

"The entry of new investors who follow momentum strategies - buying commodities that have experienced high returns during some recent period and selling or shorting those that have underperformed - may have influenced market behavior," Lipsky said. "A rapid increase in the number of investors following such strategies have driven prices away from fundamentals at least to same degree."