Click here to download Intesa Sanpaolo’s Research Department’s December edition of its Macroeconomic Outlook.
This issue of the report is dedicated in large part to the implications of lower oil prices for the global economic outlook.
- The large decline in oil prices that occurred at the end of 2014 reduced by at least $ 400 billion the annualtransfers of financial resources from oil importers to oil exporters and will impact on the global economy in 2015 more than imagined.
- The most immediate and obvious impact will be on inflation, which will temporarily drop to negative levels in the Eurozone and the United States in early 2015. In parallel, we shall observe an improvement in the trade balances of consumer countries; profit margins and the purchasing power of households will rise.
- The impact will be stronger in the United States, because of lower taxes on fuels, but the significance will be greater in the eurozone, where the underlying speed of the economy at the end of 2014 is much lower. Exports to oil-exporting countries will drop drastically and some of them may be subject to financial instability, but the net effect will remain largely favorable.
- The benefit to the European economy is estimated at 0.3% of GDP, with likely consequences that will extend to 2016. The estimate should be conservative, since it is based on an average price of $ 72 per barrel compared with about $60 today.
- Italy will lag behind other large Eurozone countries, in particular Germany, Spain and the Netherlands.However, several factors should support the recovery: the weaker exchange, the acceleration of domestic demand in other eurozone countries, the release of purchasing power due to the fall in energy prices, the orientation marginally expansionary fiscal policy, the improvement in financial conditions. The estimate for2015 GDP growth has been kept at 0.4%: energy saving compensates still negative performance of economic data at the end of 2014, that would otherwise justified a trimming of our growth forecasts.
- The oil shock reinforces the leading role of the United States for the global economy. GDP growth in 2015 isestimated at 3.2%, against 1.1% of the Eurozone and 0.8% in Japan. Even considering the contraction of GDP in the oil exporting countries, the global GDP growth is expected to accelerate from 3.2 to 3.6%.
- What are the implications for monetary policies? In the United States, where the recovery is solid and mature,the effect of stimulus to domestic demand prevails over the temporary reduction in inflation, and enhances the prospect that the Federal Reserve will begin raising official interest rates in mid-2015.
- In Europe, despite the help of oil the ECB will need to strengthen a still fragile recovery and unable to stand on its own. There are signs that in the early months of next year the ECB will eventually launch a major program to purchase government bonds. The minimum size is conceivable of 300-350 billion, but this figure is sufficientonly if it is assumed a great success of the other programs already announced and will be purchased even ifcorporate bonds, high-volume (70 billion euro). Likely, therefore, it will be larger than this. Although we do not believe that the program can have revolutionary effects on the prospects of recovery, it will be a very usefulstep to reinforce growth, support, confidence, control risk aversion and facilitate the sustainability of public debt.
- The trend of monetary policies will push further down the euro / dollar, but it will pay to be cautious about the objectives (1.20 to 1.17), considering the interplay with monetary policy.