IMF warns commodity exporters of economic slump

THE International Monetary Fund (IMF) has warned commodity exporters including Zambia which depends on Copper  of slower economic growth because of sustained decline in commodity prices.

The IMF has warned that prices will remain supressed between 2015 – 2017 during which time the countries must diversify and find altenative revenue sources.

In an analytical chapter of the IMF’s flagship World Economic Outlook report, which is to be published next week in Peru, IMF economists found that the weak commodity price outlook could subtract almost 1 percentage point annually from the growth rate of commodity exporters over the 2015-2017 period as compared with the 2012-2014 period.

Countries exporting oil and other energy products would see a hit more than twice that size, the research found.

According to the research, analysts generally agreed that commodity prices will likely remain low, given ample supplies and weak prospects for global economic growth, and the commodity futures prices suggest future spot prices for commodities will remain low or rebound only moderately over the next five years.

The IMF economists said that exchange rate flexibility can help support the commodity exporters to offset the impact from the falling prices, while the reduced commodity-based fiscal revenues and slower potential growth will constrain their scope in deploying fiscal policy to counter the price drops.  In a separate analytical chapter, the IMF economists argued that a weaker currency could still give sizable boost to a country’s exports despite the fact that the rise in global value chains has to certain extent weakened the relationship between exchange rates and trade in intermediate products used as inputs into other economies’ exports.

The research found that 10 percent depreciation in a country’s real effective exchange rate could raise its real net exports of 1.5 percent of GDP.

The findings suggested the U.S. witnessed a blow to its net exports as the U.S. dollar has appreciated by more than 10 percent in real effective terms since mid-2014, while euro zone saw a boost to its exports following the depreciation of more than 10 percent in the euro since early 2014.