Apart from the fact that it's much cheaper to fill up our cars: is this good for the global economy?
The slide in oil prices will boost growth in many economies. While companies, particularly those in the manufacturing industry, will have lower costs, normal consumers gain purchasing power. They have to spend less on fuel and heating. We are forecasting economic growth of 1.5 percent across the euro zone, and 3 percent for the US. Emerging markets, who are large importers of oil, will profit from lower prices. India and Indonesia have used low prices to slash energy subsidies. The money saved can be channeled into investment programs.
Many people are currently considering whether to top up their heating oil tanks. What would you tell them to do?
We're expecting oil prices to climb slowly and steadily. It's a cost-effective time to fill up your tank. Of course, prices may dip slightly, but getting the cheapest price is purely a matter of luck.
So that's the positive aspect. How is it affecting countries who rely on exporting oil?
Most oil-exporting nations in the Arab world have accumulated considerable reserves in recent years. This is now helping them to cushion the consequences of declining government revenue. However, the situation is altogether different in Venezuela and Russia. Default looms in Venezuela. Russia is doubly hard hit: oil as a source of income is no longer viable. At the same time, sanctions have pushed the economy into a deep recession.
But, surely, from a global perspective, it must be a good omen for the next few years?
Unfortunately, it's not an entirely auspicious sign. From a medium-term economic perspective, it's not just the price of oil that plays a part. Many countries need structural reforms and better conditions for investment. The low oil price is hiding a danger: inflation rates are slipping into the negative. If the people who decide monetary policy see this as an undershooting of their inflationary targets and flood the markets with even more money, there is, of course, the danger that the financial markets will overheat. In the short term, the boom will be supported, but in the long term this poses a grave danger to the global economy.
