David Fuller's view -
At Societe Generale, Michala Marcussen, global head of economics, reckons every $10 drop in the price of oil lifts global growth by 0.1 percentage point. She estimates that since 2014, the world has enjoyed a windfall equivalent to 2 percent of gross domestic product it would otherwise have spent on crude.
“Our biggest relief last week was that OPEC decided no output cut, promising consumers inexpensive oil for longer,” said Marcussen.
Even though falling oil may weaken the inflation rates central bankers are struggling to lift, Erik Nielsen, chief economist at UniCredit Bank, said it was important to recognize that it’s “‘good’ disinflation, because it stems from supply rather than demand and so should raise real income, thereby propelling consumption and the recovery.”
“A drop in Energy prices is the equivalent of a tax cut, with no implications for debt,” he said, adding that faster expansions as a result should end up bolstering prices too and so investors should be wary of wagering on a deterioration in inflation.
Some central bankers are seeing the upside of cheaper oil too. Jens Weidmann, president of the Bundesbank, on Dec. 3 objected to the ECB’s additional easing by saying “the significant Energy price declines in fact are supporting the recovery.” Fed Bank of San Francisco President John Williams said last week the effects of falling oil on headline inflation should also soon “peter out.”
I certainly maintain that the big fall in oil prices, created by oversupply and the continued advance of renewable forms of Energy and also nuclear power, is a considerable long-term economic stimulus for global GDP growth. Many $billions which were previously transferred to oil exporters, of which there are relatively few, are now largely retained by oil importing countries of which there are many more. These include most developed economies and also the largest Asia-Pacific emerging nations, which have vastly greater populations than oil producing countries.
However, there is also a significant drawback.
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