Prepare for global growth to accelerate.
Oil prices have been tumbling for months, and historically, GDP tends to pick up following these drops. You can see the relationship in this chart from Nordea Markets’ Martin Enlund.
Enlund sees thing being particularly good in the second half of 2015. And with a nod to the popular TV show “Game of Thrones,” he sums it up nicely: “summer is coming.”
From the macro point of view, major energy importers like Japan, China, and India really benefit from lower prices because they have to spend less on oil.
“China is the world’s second-largest net importer of oil. Based on 2013 figures, every $US1 drop in the oil price saves it an annual $US2.1 billion,” according to The Economist.
And Citi’s Robert Buckland wrote in a note that “the decline in oil prices, along with moderate growth in nominal per-capita wages and employment is likely to boost the real purchasing power of Japanese consumers.”
As for India, “the lower oil prices help [the] government deal with some of those challenges by taking some of the financial burden off the oil subsidies. Cheaper oil also introduces a trickle-down effect on inflationary pressure on food and other commodities,” writes Jeff Benjamin.
To put it briefly, lower oil prices are great for energy importers.
“…the net is that lower prices are good for both US consumers and many US businesses,” writes Charles Schwab’s Liz Ann Sonders. “The Brookings Institute recently noted that the decline specifically in gasoline prices thus far represents a $US500 ‘tax cut’ per household.”
So unless you’re an oil exporter, plunging oil prices are great news.
Below is a chart from M&G investments highlighting how major events related to oil price spikes negatively affected global growth.
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