IMF’s Lagarde: Oil price fall good for world economy, bad for Russia

By Christopher Condon

Dec. 1 (Bloomberg) — The drop in oil prices will provide a net boost to the global economy while posing risks for energy- producing nations including Russia, International Monetary Fund Managing Director Christine Lagarde said.

"On a net-net basis, it is probably good for the global economy," Lagarde, speaking in Washington, said in her first comments on last month's 18 percent decline in crude prices. For Russia, the drop is a "significant threat" that "is adding to their fragility and their vulnerability and they know it. It remains to be seen what the reaction will be."

The remarks illustrate the benefits and dangers from surging U.S. oil production that's reshaped the world's geopolitical landscape amid a weaker-than-anticipated global recovery. A 30 percent decline in oil prices translates into an 0.8 percent boost in growth for "most advanced economies" and "probably 0.6 percent for the U.S.," Lagarde said.

While exporters are taking a hit, "it's a net booster on an aggregate basis," Lagarde said at the Wall Street Journal CEO Council conference.

Oil and gas provide 68 percent of Russia's exports and 50 percent of its federal budget. Russia has already lost almost $90 billion of its currency reserves this year, equal to 4.5 percent of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine. The ruble is down about 35 percent against the dollar since June.

Balancing Budgets

Lagarde said she recently told an audience in Kuwait that Middle East countries should be prepared to run fiscal deficits. Venezuela and small African countries would also be among those hit hard, Lagarde said.

The IMF may be called upon to help smaller countries that rely on oil exports, she said. Regarding Ukraine, she said that "a lot more financing is going to be needed" to support a government "that is serious about reforming the country."

Lagarde has previously warned that residual debt from the financial crisis and high unemployment is threatening to relegate the global economy to a sustained period of underwhelming growth, a risk she terms the "new mediocre."

The International Monetary Fund cut its forecast for 2014 global growth in October for the sixth time since January 2013. – BLOOMBERG