No country will benefit from plunging oil prices – apart from the Americans.
According to a report from credit rating agency Moody’s, the global economy will not benefit from falling oil prices in neither this year or the next.
Defying a report from the
National Institute of Economic and Social Research (NIESR) this week, Moody’s kept its growth forecasts for the G20 countries unchanged.
Global GDP is set to grow at the same rate as last year by just under 3% in both 2015 and 2016.
“Lower oil prices should, in principle, give a significant boost to global growth,” said Marie Diron, the author of the report and a Senior VP at Moody’s. “However, a range of factors will offset the windfall income gains from cheaper energy.”
Although, the US economy is tipped to get a boost from cheaper oil, Moody’s warned that a slowdown from the Eurozone, China, and Brazil will hold back economic activity.
The Eurozone caused the greatest concern for Moody’s. The rating agency said it expected its GDP to grow by just 1% in 2015 and 1.3% in 2016.
“In the euro area, the fall in oil prices takes place in an unfavourable economic climate, with high unemployment, low or negative inflation and resurgent political uncertainty in some countries, ” Diron said.
A China slowdown is also set to hit global economic growth as higher energy taxes and government-controlled prices in some energy and transport sectors will dampen the impact of lower oil prices.
Moody’s expects that China’s GDP will grow by 7% this year and just 6.5% in 2016.
While this rate of growth still seems rampant compared to the Eurozone, it is significantly slower than what China used to post a few years ago.
Brazil is also set to experience its worst three year period since the early ’90s, with its economy averaging zero growth in 2014, 2015, and 2016.
Yesterday, researchers from the NIESR forecasted that slumping oil prices would keep British economy on a steady growth in 2015.
Oil prices have more than halved in the second half of 2014, with Brent crude currently traded at $US57 a barrel.
Lower oil prices would normally benefit a growing economy, as manufacturers would take advantage of cheaper fuel and commodities.
Deflation in Europe and a general malaise in the world economy seem to put these benefits at risk.
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