Cheaper oil may hurt more than help importers: Citigroup

By Mikael Holter

Lower oil prices may prove to be more a curse than a blessing for commodity importers in developing nations.

That is because oil-exporting countries will liquidate their investments in emerging markets to plug the shortfall in revenues, according to Citigroup. The capital outflows will more than offset the cost savings from cheaper import bills for countries such as Turkey and India, undermining economic growth.



Sovereign wealth funds in oil-producing nations “help to create the global liquidity that generates capital flows to EM,” David Lubin, London-based head of emerging-market economics at Citigroup, said. “As that liquidity disappears, capital flow and growth could continue to suffer.”

Lubin correctly forecast in February 2014 that rout of emergingmarket currencies will continue.

Crude exporters will post their first deficit in current accounts, the broadest measure of trade this year since 1998, forcing them to retreat from global capital markets.