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High oil price dampening world growth - IMF’s Lipsky

Analysis

Record high oil prices over $117 a barrel are slowing world economic growth, John Lipsky, first deputy managing director of the International Monetary Fund, told Reuters on Monday.

“It’s dampening growth -- that’s for sure, but of course it is benefiting exporters,” he said. “It’s going to slow growth as we’ve said before. It’s one of the many factors this year, globally.” Lipsky said IMF assumptions for world growth were based on slightly lower prices than at present for oil, which hit a record $117.40 a barrel on Monday. He reiterated the IMF saw economic growth declining by between one and two percentage points, not just because of oil, but also because of costly food and financial sector troubles. When asked if he saw a risk to the downside, he replied: “Definitely, yes.”

The IMF’s latest World Economic Outlook earlier this month put world growth at 3.7% this year, down from a growth forecast in January of 4.%. The global watchdog has predicted the US economy would enter a modest recession in 2008 and start gradually to recover in 2009. “We think in the course of the year there will be a contraction in output,” he said, although he added that the US economy “in literal terms” was not in recession until officially labeled so by economic researchers. Financial markets have been in turmoil for months in a crisis triggered by bad debt and a sliding housing market in the United States.

Asked how to get the financial system back on an even keel, Lipsky said many steps were necessary. “There’s a long list of measures that are needed. We need to maintain liquidity, rebuild capital and deal with the weaknesses that have been demonstrated.” Lipsky was in Rome to address the International Energy Forum, a gathering of oil producers and consumers taking place until Tuesday. (Reuters)

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