Oil prices may have just hit record levels, but the International Monetary Fund is even more bullish about global economic growth in 2004 than it was six months ago.
In its semiannual outlook on the world economy, the IMF predicted that worldwide output will grow 5 percent this year, which would be the strongest performance in three decades. The fund previously forecast 4.6 percent growth this year, but revised the estimate because of what IMF economists called an unexpectedly powerful expansion in the first quarter.
The forecast was striking in that it played down concerns that crude oil prices, which touched $50 a barrel this week, pose a serious threat of slowdown or recession. "Our models indicate that the impact of higher oil prices, in terms of the direct effect . . . is likely to be moderate," although some economies -- such as oil-importing nations in Asia and Africa -- will be harder hit than others, said Raghuram G. Rajan, the fund's chief economist.
Only next year will higher petroleum costs start to dampen the expansion, and even then the effect will be muted, according to the IMF, which forecast 4.3 percent annual growth for 2005, down slightly from last spring's projection.
The prediction set an upbeat tone for the annual meetings of the IMF and its sister institution, the World Bank, which are scheduled for this weekend in Washington, and a meeting Friday of finance ministers and central bank governors from the Group of Seven major industrialized nations.
Some private economists called the IMF figures too rosy.
"To me it just looks a highly optimistic forecast," said Desmond Lachman, a scholar at the American Enterprise Institute and a former IMF staff member. He noted that the IMF assumed that oil prices will average around $37 a barrel this year and next, "and we're looking at spot prices now close to $50 a barrel."
U.S. benchmark crude for November delivery closed yesterday at $49.51 a barrel, down 39 cents, after a weekly report from the Energy Department's Energy Information Administration showed that U.S. commercial crude oil inventories had increased.
A particularly gloomy picture of the oil-price outlook came yesterday from Philip K. Verleger Jr. a senior fellow at the Institute for International Economics. He said in a presentation that the situation in world markets is remarkably similar to that of the late 1960s, before the first oil shock, when rising consumption in Europe and Japan coincided with limited investment by oil companies in new production. The emergence of China and India as major consumers of oil is having a similar effect, Verleger said, contending that crude prices could rise to perhaps $60 a barrel by mid-2005 and as high as $80 in 2006.
But IMF economists, while acknowledging that oil prices are almost impossible to predict because of geopolitical factors, said their assumptions are realistic and stuck with their long-standing rule of thumb that a $5 a barrel increase in oil for one year translates into a 0.3 percent decline in world gross domestic product.
"We are in a much better situation than we were in the 1970s," Rajan said, noting that on an inflation-adjusted basis oil prices are substantially lower than they were then. In addition, he said, most economies are far less "sensitive" to oil price movements than they were previously because of energy efficiencies that were introduced. Finally, he said, central banks have established credibility in fighting inflation, so rising oil prices are less likely to trigger a panic in financial markets that could drive interest rates sharply higher.
Still, Rajan emphasized that "the risks to the forecasts are on the downside," primarily because of oil prices. He also warned that "while it would be alarmist to call this the first resource crisis of the 21st century, it is a wake-up call. We have to realize that in the long run, and without dramatic technological change, it will simply be unsustainable for every Chinese or Indian household to consume as much energy and as inefficiently as the average American suburban household."
The IMF projected 3.6 percent annual growth for the United States in 2004, and 3.5 percent in 2005. For the euro area, it projected 2.2 percent growth in both years, and for Japan, 4.4 percent this year and 2.3 percent next year.
Staff writer Justin Blum contributed to this report.