If oil prices stay as low as they are now, they will have profound affects on the global economy.
The effects, however, differ for developed markets (DM) and emerging markets (EM).
In a note on Sunday, Morgan Stanley estimated how various oil price scenarios will alter inflation expectations around the world. In the text, MS says:
Global inflation should be 0.24% lower for every 10% decline in oil. On our base case forecasts, this means a 0.48% decline in global inflation and on our bear case this means a 0.96% decline. DM benefit more than EM on both (better) growth and (lower) inflation, although Russia skews the EM results. There is considerable divergence within EM.
While MS may say that developed markets are benefiting more on growth and low inflation , this seems like bad news for Europe, which is already struggling to stay ahead of deflation. It also raises questions for the US Federal Reserve about tightening monetary policy if inflation is dragged down by oil prices.
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