Will oil prices push world into recession?

Will oil prices push world into recession?
18:07 21 Dekabr 2015
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Baku, Azerbaijan, Dec. 21

By Aygun Badalova - Trend:

The slide in oil prices is clearly unsettling the financial markets, but it should not materially affect the prospects for the global economy, Andrew Kenningham, Senior Global Economist at British economic research and consulting company Capital Economics believes.

“Even if prices remain below $40 per barrel, this would not prevent inflation from rebounding next year. What’s more, as the latest slide mainly reflects developments on the supply side, the fall in oil prices is not a signal of weakening economic activity,” Kenningham said in a report, obtained by Trend.

“The recent fall in oil prices is not, therefore, a sign of renewed fears about global growth, let alone an indication that the world is slipping back into recession,” he noted.

The direct effect of a $10 per barrel fall in the oil price is to transfer income worth approximately 0.4 percent of world GDP from net oil producers to net oil consumers, according to the economist.

“Given that net oil consumers (such as the US) generally spend more of their income than net producers (such as Saudi Arabia) this should, eventually, boost spending,” Kenningham said.

He also noted that the past year has shown that producers tend to cut spending more rapidly than consumers increase theirs.

What’s more, the boost from an extended period of lower oil prices should come through relatively quickly in economies with next to no domestic producers, such as the euro-zone, Kenningham believes.

Oil prices hit 11-year lows on December 21.

Brent crude was trading down 2 percent at $36.16 a barrel on London’s ICE Futures Europe Exchange for cargoes loading in February.

West Texas Intermediate was trading down 1.4 percent at $34.25 a barrel for January cargoes.

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