Technical & Fundamental Oil Reports Specialists

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The resource curse bites

Published Tuesday, October 13th, 2015

From the reports coming out of the weekend IMF/World Bank meetings in Lima the consequences of the commodity price meltdown was a major point of discussion. There can be no doubt that the fallout from the price fall has not gone to plan. The fallout was supposed to be positive for the global economy, and maybe it will be in the long term. In the short term it is proving to be anything but, with widespread concern that it may unleash an emerging market financial collapse.

Emerging market commodity dependent sovereigns and companies have built up huge debt burdens that they cannot sustain and will not be rolled over at today’s price levels. A high level of default is seen as inevitable unless commodity prices recover rapidly, even without an increase in dollar interest rates. Add in a rate increase and we are warned of a default storm which threatens the EM banking system and beyond.

Resource rich countries have allowed themselves to become too dependent on commodity revenues failing to implement the structural reforms necessary to build a flexible and competitive economy. This is the ‘resource curse’ so often talked about which has parallels with the ‘QE curse’. Even central bankers have come under the IMF’s gloomy spell with Mark Carney describing the economic environment as “unforgiving” and admitting that the global economy is not strong.

to read the rest of the report, please click here

Posted by David Hufton