A sharp drop in oil prices and a stronger U.S. economy probably won't be enough to brighten the prospects for global economic growth this year, the head of the International Monetary Fund said on Thursday.
IMF Managing Director Christine Lagarde said cheaper oil would help consumption across much of the world, but the United States likely would be the only major economy this year to buck a trend of weakness in investment and consumption.
"A shot in the arm [from lower oil prices] is good, but if the global economy is weak on its knees, it's not going to help," Lagarde said in a speech.
Lagarde also told a Washington audience the economy continues to face "headwinds" from slowing growth in emerging economies like China.
In a speech that previewed IMF global growth forecasts due next week, Lagarde wondered aloud if the aforementioned factors should make the IMF more up beat.
"The answer is most likely 'No'," she said before rattling off a laundry list of the world's economic sore spots. The eurozone and Japan risk suffering a long period of weak growth and dangerously low inflation, with the specter of a nightmarish deflationary spiral of falling prices and wages already looming over Europe," she said.
While softer U.S. data from December has pushed investors to bet the Federal Reserve will wait longer, perhaps until October, to raise interest rates, Lagarde said the expected monetary policy tightening could lead to more volatile swings in financial markets, particularly in poorer countries where banks and firms have borrowed more in dollars in recent years.
Falling prices for oil and other commodities are already putting "huge currency pressures" on Nigeria, Russia, and Venezuela, she said. "A shot in the arm [from lower oil prices] is good, but if the global economy is weak on its knees, it's not going to help," said Lagarde.
Beyond being a boon for consumers, she said low oil prices are more a "golden opportunity" for countries to reduce energy subsidies and focus government spending more on alleviating poverty.
She did urge policymakers to show the leadership and political courage needed to give emerging economies a larger voice in IMF decisions, and to cut energy subsidies that hurt the budgets and economies of some nations.
Some material for this report came from Reuters.