SURGING OIL PRICES have the potential to knock the Eurozone further into recession and cost hundreds of thousands of jobs, according to analysis by Ernst & Young.
If the price of crude hits $150 (£95) a barrel this year, the consultancy expects to see contraction of one per cent in the Eurozone’s GDP, compared to a 0.5 per cent slump if the oil price falls to $105 by the end of the year.
At $150, oil would put further pressure on inflation, sending the consumer price index up from 2.2 per cent to three per cent this year, and from 1.8 to 2.8 per cent in 2013, Ernst & Young added.
It also estimates that 192,000 more people could lose jobs as a result of oil hitting this price. Its experts have forecast unemployment of 18.1m this year if oil reaches $150, compared to a baseline of 17.9m.
The price of crude has been nudging record highs of $128 a barrel in recent weeks, inflamed by supply problems coupled with Iran’s antagonistic stance towards the West.
Forecasts differ widely for where the price of oil is heading, with some experts predicting highs of $200 if the US starts military action against Iran, while others expect the price to settle closer to $100 throughout the year.
“A new oil shock would hit an already fragile economy. With their budgets already squeezed by austerity measures and rising unemployment, many households are likely to be unable to offset the rise in energy bills with lower savings,” said Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast.
“Instead, consumer spending on other goods and services would be cut to make up for higher spending on energy.”