Weak Eurozone dampens boost of low oil prices

Adam Hignett
World growth will not surge on falling oil prices, analysts at Moody’s said today, because problems in the Eurozone and China’s economic slowdown will dampen any boost.

The impact of lower oil prices may even have an adverse effect in some struggling Eurozone countries, said the author of the report.

“In the Eurozone, the fall in oil price takes place in an unfavourable economic climate, with high unemployment, low or negative inflation and resurgent political uncertainty in some countries,” said Marie Diron.

The resulting low or negative inflation is likely to push wage growth lower, dampening gains in real income.

Worries about job security will also stifle demand and drag on growth, with GDP expansion expected to remain broadly unchanged at just below one per cent in 2015, despite quantitative easing.

Moody’s predicts the price of oil will average $55 in 2015 and is likely to have the opposite effect in countries such as India and the US, which the report singles out as having the greatest chance of benefiting from the resulting increase in consumer spending power, although risks remain with the US withdrawal of stimulus.

Oil dependant Russia is expected to enter a sharp recession which will last until 2017 and other risks include a longer than forecast fall in China’s property market.

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