After last week’s major oil price spike, it seemed Monday would be a good time for the world’s investment banks to come to terms with the number, and drop their GDP estimates as a result.
But nobody is really biting.
Earlier, we told you how SocGen don’t see this price spike hitting global GDP. Their statement goes against their analysis that suggests global GDP will be hit by 0.25% for each $10 increase in a barrel in oil, according to the bank’s head economist Michala Marcussen.
Citi’s Robert DiClemente says that $100 oil prices will cut consumer spending by around $45 billion, and near-term growth by 0.25%. But another Citi analyst, Steven Weiting, doesn’t see this problem sticking around and hitting the consumer demand rebound.
Significant increases in energy costs could lead to slower demand in 1Q 2011, but 2011 as a whole should be stronger. We currently expect personal consumption to increase at a 2.8% annualized rate in 1Q 2011.
And Goldman doesn’t think we’re going to get burned much either.
Sven Jari Stehn writes (emphasis ours):
First, we find that a 10% oil price shock lowers the (annualized) growth rate of real GDP by an average of 0.2 percentage point during the subsequent two years—that is, the level of real GDP is lowered by 0.2% after four quarters and 0.4% after eight quarters. These estimates are right in line with our own previous work in this area and simulations from the Federal Reserve’s macroeconomic model.
Second, we see that weaker consumption accounts for almost the entire decline in GDP during the first few quarters. But then business fixed investment starts falling and inventory accumulation slows. Net exports—in contrast—provide an offset, because weaker domestic demand pushes down real imports.
The above analysis suggests that our GDP growth outlook should be fairly robust to oil price increases that go moderately beyond this.
They all see the chance that this spike can have a very real impact on the global consumer, but they don’t see how that will have the power to reshape their bullish GDP projections just yet. This may be because the whole oil price spike situation is overplayed, and the banks are correct about future growth. But current data would suggest we have a lot more to worry about regarding oil in relation to the consumer led recovery.