As part of a report by Credit Suisse on the effects of decreasing oil prices, Credit Suisse global macro researcher Björn Eberhardt said the global economy will benefit as declining prices will boost confidence and lower pressure on central banks to tighten policy.
“In the case of rising oil prices, the opposite may well happen,” Mr Eberhardt said. This reinforces our view that the effect of falling oil prices will add to GDP growth next year.”
“In its October 2014 World Economic Outlook, the IMF showed a simulation of the impact of a 20 per cent oil price hike on global GDP. The pure economic impact was found to lead to 0.2 percentage points lower global GDP growth for two years,” he said.
“Assuming a largely symmetric response of the world economy to an oil price decline of similar magnitude, global GDP growth would be 0.2 [of a per cent] higher per annum for two years,” Mr Eberhardt said.
Focusing on the major economies Mr Eberhardt said the effects of a decline in oil prices will vary across countries.
“For the US, the impact on the level of real GDP after two years is estimated to yield an increase of 0.4 per cent (or 1.2 per cent in the case of the ‘confidence boost’),” Mr Eberhardt said. “The effect for the Eurozone is broadly similar.”
“For Japan and China, the IMF estimates the impact to be around 0.6 per cent to 0.7 per cent,” he said.
“For oil-producing economies such as Russia and Saudi Arabia, the IMF instead projects a decline in GDP growth of slightly more than 1.0 percentage point per year over two years,” Mr Eberhardt said.
