Moody’s Says Lower Oil Will not Boost Growth

Lower oil prices will fail to give a “significant boost” to global growth in the next two years, Moody’s has said.

The ratings agency said any boost from cheaper oil would be offset by the eurozone’s economic woes as well as slowdowns in China, Japan and Russia.

As a result, Moody’s said it would not be revising its growth forecasts for the G20 countries.

“For the G20 economies, we expect GDP growth of just under 3% each year in 2015 and 2016.”

This was unchanged from 2014 and from its previous forecast, Moody’s said.

Marie Diron, the author of the report, said: “Lower oil prices should, in principle, give a significant boost to global growth.

“However, a range of factors will offset the windfall income gains from cheaper energy.

“In the euro area, the fall in oil prices takes place in an unfavourable economic climate, with high unemployment, low or negative inflation and resurgent political uncertainty in some countries.”

Moody’s said the European Central Bank’s quantitative easing programme would give a slight boost to the eurozone by weakening the euro.

However, it said: “Weak demand in the euro area suggests that companies will have to pass on the lower energy costs, limiting the potential for higher profit margins.”

One of the countries that should see a boost from cheaper oil is the US. Moody’s said, which will benefit through “higher consumer and corporate spending”.

Moody’s global growth outlook is based on the assumption that Brent oil prices will average $55 (£37) a barrel in 2015, rising to $65 on average in 2016. Oil prices were trading at about $115 a barrel last summer.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza