The coronavirus crisis will see global oil demand dropping by around eight percent this year, compared to last year, the International Monetary Fund (IMF), has said in a new report.
This year, oil prices will be 41 percent lower than in 2019, the IMF said in its ‘Global imbalances and the COVID-19 crisis’ external report. The direct impact of the low oil prices on oil trade balances will vary across economies, reflecting their dependence on oil exports and imports, according to the IMF.
The Fund’s estimates for this year’s global oil demand decline are in line with other forecasts such as the International Energy Agency (IEA), and Organization of the Petroleum Exporting Countries (OPEC).
The Fund said the COVID-19 pandemic has caused a sharp decline in global trade, lower commodity prices, and tighter external financing conditions. At a global level, the latest IMF staff forecasts for 2020 imply a modest narrowing in current account surpluses and deficits by some 0.3 per cent of world gross domestic product (GDP), although subject to high uncertainty.
Last month, the IEA said in its latest Oil Market Report that global oil demand was set to crash by 7.9 million barrels per day (bpd) this year, which was slightly more optimistic than last month’s expectation of an 8.1-million-bpd demand drop.
The IEA, however, noted that the recent rise in COVID-19 cases and the reinstating of partial lockdowns in some countries continue to contribute to the uncertainty surrounding the world’s global oil demand in 2020.
This year, the world is expected to consume an average of 92.1 million bpd of oil, compared to the typical demand of 100 million bpd, the IEA said.
OPEC, on its part, expects overall global oil demand to drop by 8.9 million bpd in 2020, before rising by 7 million bpd in 2021, when it will still be lower than demand in 2019.
The oil price plunge and the production cuts after the coronavirus pandemic will hit oil exporters in the Middle East and North Africa (MENA) hard, with the combined oil income for those countries expected to plummet by $270 billion this year compared to 2019, the IMF said in its latest update on the region last month.
On the impact of remittances balances, the IMF noted remittances are highly vulnerable to the COVID-19 crisis because migrant workers are typically more exposed to the risk of unemployment and wage losses during recessions than are native workers. Migrant workers also work disproportionately in such sectors as food and hospitality, retail and wholesale, and tourism and transportation, which have taken a hit from the crisis.
The decline in remittance inflows in percent of GDP is expected to be concentrated among a number of emerging market and developing economies. Citing World Bank data, IMF said World Bank 2020 forecasts an average 20 percent fall in remittance flows in 2020, based on an empirical model that links remittance inflows to migrants’ incomes proxied by the nominal per capita incomes of the migrants’ economies of destination.
For economies where remittance inflows represented more than five percent of GDP, such as Egypt, Guatemala, Pakistan, the Philippines, and Sri Lanka, the decline would imply significant hardship for many households and small businesses that rely on remittances, just as their domestic economies are hit by the synchronized nature of the COVID-19 crisis.
While uncertainty is high, depending on the pace of economic recovery and risks of a second wave, effects on current account balances may persist, with remittances expected to rebound only partially (by 5 percent) in 2021.
Remittances declined sharply in April 2020, before partially rebounding in May. The direct annual impact on current account balances for some economies could exceed 1 percent of GDP.
International tourism has been among the hardest hit sectors during the COVID-19 crisis, reflecting travel restrictions, although discussions on measures for lifting restrictions are underway. During the first four months of 2020 international tourism arrivals were about 50 percent lower than over the same period in 2019, with deeper declines for related indicators, such as international flight arrivals and hotel reservations