The Upside to a Weak Dollar: Stable Oil Prices

    Samuel Rines

    Economics, Americas

    A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration

    And moderate oil prices are a good thing for the United States and global economy.

    The International Monetary Fund has caught up to the global growth story. In its latest update, the IMF stated that the global economy was poised to grow at a pace last seen in 2011 about 4 percent. That is not something to take lightly. This is the eighth year in the recovery and 4 percent is an acceleration. That is incredible.

    It is worth taking a moment to figure out exactly what it means to have global growth in the 4 percent range. First, it is worth pointing out that this clip of growth is similar to—or even faster than—the growth seen in the 1990s. Global growth in the 1990s (using the IMF’s data) averaged about 3.3 percent. The projected growth in 2017–2019 is above the norm for the past couple decades. The growth should also feed off of itself and last through next year. One takeaway: Enjoy this growth, it is not the norm even in the roaring 1990s.

    Interestingly, the IMF did not emphasize the higher and stable oil prices in their outlook. That is somewhat strange given its importance to the global economy. Many emerging countries rely on commodities to finance their economic expansion and spur growth. Without the stability in the current oil markets, it would be difficult to expect the type of growth the IMF is anticipating.

    Brazil, Russia and Nigeria are examples of a few large, emerging countries are highly dependent on commodities for their growth. Other countries are reliant on oil not only for their growth, but also for their stability, including Saudi Arabia.

    The IMF stated that it was upgrading the United States’ economic outlook (and therefore the World’s outlook) because of tax reform. While somewhat of a “no kidding” moment, it spotlights how meaningful tax reform may be for U.S. growth. Not to mention, there are a number of reasons to suspect that the 2.7 percent growth projection for the United States is too low, and a figure north of 3 percent is a possibility. And a U.S. economy growing at a pace of more than 3 percent would push the global pace to more than 4 percent. European and Japanese growth expectations are also impressive, and there may well be upside risks to those forecasts as well.

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