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Lower oil prices lead to less pressure on inflation
Just a few months ago, major oil trading houses were predicting the return of crude to $ 100. Now, with oil prices at half this level, here's a snapshot of what the recession means for the global economy. Energy importers such as India and South Africa will benefit; oil producers such as Russia and Saudi Arabia will hurt. Central banks under pressure to raise interest rates will benefit from a stay; those seeking to revive prices, such as the Bank of Japan, face another hurdle.
In the end, it all depends on how global oil demand will evolve under the effect of a strong dollar and an increase in global trade and reaction from larger producers. .
(See also: Crude oil prices collapse, reaching their lowest level since December 2017)
Saudi Arabia lies between Russia on one side, its ally in production management to support prices, and the United States, where President Donald Trump is sending Twitter messages to the producer to get the prices. All eyes are on the meeting of the Group of 20 this week to see if a consensus on production emerges between the Saudis and Russians, and whether it can lead to the meeting of OPEC next week.
This is a Bloomberg Economics chart showing net oil imports. (or exports) as a percentage of GDP – cheaper oil helps those at the top of the chart and hurts those at the bottom.
What does this mean for global growth?
As winter approaches in the northern hemisphere, the drop in the price of oil will dampen households and businesses during a period of slowing economic growth. Oil-importing and current account deficit countries, such as South Africa, will also benefit, with China being the largest oil importer in the world and already struggling for greater moderation of its economy in the world. context of a trade war with the United States and domestic challenges. .
(Also read: Low Crude Prices to Limit the Increase in the Current Account Deficit – Report)
What is inflation about?
Falling oil prices mean less pressure on inflation and less pressure on central banks to raise interest rates. An example: Bloomberg Economics says that the slowdown in energy has changed the game for India and could mean that the Reserve Bank of India will adopt a neutral attitude.
How Will Emerging Markets Manage Falling Prices?
Every $ 10 – The drop in the price of a barrel of oil increases revenues by about 0.5 to 0.7% of the gross domestic product of major emerging market oil importers, say Capital badysts Economics.
The same reduction will result in a loss of 3 to 5% GDP in most Gulf economies and a 1.5-2% GDP slowdown in the United Arab Emirates, Russia and Nigeria, all on a annualized basis, according to badysts.
for the world's largest economy?
Trump described the fall in oil prices as the equivalent of a reduction in taxes. Nevertheless, the decline in US dependence on imported oil due to the emergence of shale production will negatively impact the economic benefits to the industry.
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