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IMF's Lagarde: Cheap oil not enough to help world economy

A sharp drop in oil prices and a stronger U.S. economy will probably not be enough to brighten the outlook for global economic growth this year, the head of the International Monetary Fund said on Thursday.

Says low oil prices 'a golden opportunity' to reduce energy subsidies

International Monetary Fund (IMF) Managing Director Christine Lagarde speaks at a forum "What's Next for the Global Economy: A Look Ahead at 2015" at the Council on Foreign Relations in Washington January 15, 2015. (Yuri Gripas/Reuters)

A sharp drop in oil prices and a stronger U.S. economy will probably not be enough to brighten the outlook for global economic growth this year, the head of the International Monetary Fund said on Thursday.

IMF Managing Director Christine Lagarde said while cheaper oil would help consumers in much of the world, the United States would likely be the only major economy this year to buck a trend of weakness in investment and consumption.

"Should lower oil prices and a stronger recovery in the United States make us more upbeat about the prospects for the global economy?" Lagarde said in a speech. "The answer is most likely 'No.'"

In a speech that previews an IMF report due next week on the global economic outlook, Lagarde said the euro zone and Japan remain at risk of settling into a long period of weak growth and dangerously-low inflation. The specter of deflation, a nightmarish scenario of falling prices and wages, remains a risk for Europe, she said.

At the same time, the IMF also sees economic growth slowing in emerging market economies, led by a slowdown in China.

"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.

Beyond being a boon for consumers, low oil prices are more a "golden opportunity" for countries to reduce energy subsidies and focus government spending more on alleviating poverty, Lagarde said.

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