One of the biggest surprises of 2016 has to do with the impact of low oil prices on the global economy. Yes, we do understand the economies of exporting countries might be dramatically affected when the price of oil slides. After all, oil is the world’s number one export product. It represents almost eight percent of all exports. In 2014, crude oil exports amounted to more than 1.4 trillion dollars.
But the general expectation among economists had been that consumers in oil importing countries would take what they were saving at the pump and spend it elsewhere, stimulating their respective economies. That’s why in April of last year the International Monetary Fund (IMF) projected a 3.5% growth rate for the global economy in 2015, and up to 3.8% growth in 2016, even though one IMF economist described that rate as “moderate and uneven.”
Well this year the IMF is singing a different tune entirely. In its April 2016 World Economic Outlook, the international lender of last resort now states “[T]he widely anticipated [oil-related] ‘shot in the arm’ for the global economy has yet to materialize.” And as oil prices have dropped sixty-five percent (measured in U.S.dollars) since 2014, “growth has progressively slowed across a broad range of countries.”
IMF analysts admit to being stunned by this lack of economic growth. In fact they’ve reacted by somewhat understatedly observing, “It’s complicated.” In this recent Outlook, they cite a “positive correlation,” between stock and oil prices, meaning when oil prices declined last year, stocks also declined. And lower stock prices, in turn, suggest a lackluster economy – just the opposite of the scenario they originally anticipated.
As the IMF report also mentions, existing low interest rates play into the equation:
“[W]hen an oil importer’s macroeconomic conditions warrant a very low central bank interest rate, a fall in oil prices could move the real interest rate in a way that runs counter to the positive income effect.”
While we can appreciate the honesty of IMF analysts in owning up to their mistake, as my Uncle Ed used to say, “Fat lot of good it does me…” It’s becoming increasingly clear where relying on the expertise of others leads us. We can’t build wealth on others’ predictions – no matter how professional or well-intended they seem.
If you routinely play the futures market, or are unconcerned about your retirement funds because you have endless resources, then good luck! But the IMF’s adjustment in its own estimate of global growth last year to this makes it clear we need to think defensively about our own finances, especially the closer we are to retirement. Investing in physical gold is the best way to accomplish this. It’s a tangible asset that you can rely on for long-term value.
Incidentally, the International Monetary Fund holds almost ninety-one million ounces of gold in designated depositories. That kind of says it all, doesn’t it? We’d be well advised to pay less attention to what IMF officials predict about the economy for others, and more attention to how they actually manage their own affairs.