Lower oil prices will be sustained throughout 2015 but don’t expect any boost for the majority of the world’s countries, according to a global growth forecast from Moody’s Investor Service.
“Lower oil prices, which we expect to be sustained, would in principle provide a significant boost to global growth,” Marie Diron, senior vice-president of Credit Policy at Moody’s and author of the agency’s “Global Macro Outlook 2015-16” report published Wednesday, CNBC reported.
“However, we are maintaining our G-20 forecast,” she said. “For the G-20 economies, we expect gross domestic product (GDP) growth of just under 3 percent each year in 2015 and 2016, unchanged from 2014 and from our November 2014 Global Macro Outlook,” Diron added.
Moody’s global growth outlook is based on the assumption that the price of benchmark Brent crude oil average $55 a barrel in 2015, around its current price.
The report concludes that the US and India “are among the main beneficiaries from cheaper oil as consumers and companies spend part of the gains in real incomes stemming from lower energy prices.” It predicted the US economy to grow 3.2 percent in 2015 and 2.8 percent in 2016.
“For India, high inflation has been one factor constraining growth in recent years, which the fall in oil prices will alleviate. This will provide tailwinds to already positive conditions. We forecast GDP growth to rise to close to 7 percent in 2016, from 5 percent in 2014,” Diron said.
Bad News for Some
While consumer-led economies stand to gain from the lower oil price as it lowers the cost of fuel and goods, encouraging consumer spending in theory, not everyone gains from the lower oil price.
For oil exporters like Saudi Arabia and Russia, Moody’s said lower oil would continue to weigh on growth with a recession in Russia that is expected to last until 2017. The largest oil exporter among the Organization of Petroleum-Exporting Countries (OPEC), Saudi Arabia, would increase spending to mitigate the effect of lower oil prices, helping to maintain positive growth, the rating’s agency added.
For oil importers like China, higher energy taxes and government-controlled prices in some energy and transportation sectors “will dampen the impact of lower oil prices,” Diron noted. She added that lower energy costs “won’t stop the ongoing and gradual economic slowdown, but will reduce the need for stimulus to prevent a sharper deceleration.”
Adding to the pessimism for some, “a range of factors” would offset the windfall income gains from cheaper energy in some oil importing countries or regions, including Japan, Brazil and the eurozone.
In these locations, the fall in oil prices takes place “against an unfavorable economic backdrop, with high unemployment and political uncertainty” meaning that a “large part of the income gains are likely to be saved rather than spent.”
