While the impact of low oil prices on growth in oil-importers was less than expected, lower oil prices have helped reduce vulnerabilities in some of these countries, particularly among EMDEs. This was reflected in improved current account positions and lower inflation in countries with prior vulnerabilities, which helped support investor confidence and allowed monetary policy authorities to regain some space for policy easing (World Bank 2016b).

# **3.1 Impact on oil exporters**

The oil price plunge had broad-based and long-lasting effects on economic activity in oil exporters. Nearly 70 percent of oil-exporting EMDEs registered slowing growth in 2015 and 2016, and most of them experienced a sharp deceleration in private consumption and investment (Figure 6).

The plunge quickly depleted oil revenues, forcing abrupt cuts in government spending that accentuated the slowdown in private sector activity in many regions (World Bank 2016b, 2016c, 2017a; Danforth, Medas, and Salins 2016). This effect was amplified in countries that entered the most recent oil price decline with weaker fiscal positions and higher private sector debt than in previous episodes. This contributed to a more pronounced slowdown in aggregate demand, particularly in investment in the Middle East, Sub-Saharan Africa, and Eastern Europe (BIS 2016).

Idiosyncratic factors, including sanctions against Russia, geopolitical tensions in the Middle East, and conflict and deteriorating security conditions in some low-income Sub-Saharan producers (e.g., Chad, South Sudan) also exacerbated the impact of the oil price shock in the affected countries. In turn, economic headwinds in Russia and members of the Gulf Cooperation Council (GCC) had adverse cross-border spillover effects through reduced trade flows, remittances, foreign direct investment, and grants (World Bank 2015b, 2016d).

In general, activity in oil exporters with floating exchange rate regimes and a relatively high degree of economic diversification recovered more quickly from the fall in oil prices than those with fixed exchange rates and less diversification. Oil exporters with large foreign reserves and more stable inflation also showed greater resilience (Grigoli, Herman, and Swiston 2017; World Bank 2016b). High income inequality and political instability also weakened the ability of oil-exporting economies to weather low oil prices (Ianchovichina and Onder 2017).

Medium-term growth prospects for oil exporters have also deteriorated following the oil price collapse. Investment growth tends to respond particularly strongly to a deterioration in terms of trade, which, in turn, negatively affect capital accumulation and total factor productivity growth (World Bank 2017a, 2018a). This dampening effect on potential output growth can be particularly strong in less diversified economies (Aslam et al. 2016).

# **3.2 Impact on oil importers**

Contrary to expectations in 2014–15, the collapse in global oil prices did not provide a boost to activity among oil-importing economies, most of which experienced slowing growth in 2015–16 (Figure 7). Growth disappointments were concentrated in EMDE oil importers, but an unexpected slowdown in the United States in 2016 also had an outsized effect. Adjustment costs and uncertainty associated with large oil price changes could have disrupted activity and investment in the short term (Hamilton 2011; Jo 2014). The most important factors behind the lack of a positive growth response to lower oil prices are assessed to be the following: 7