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In the past, falling oil prices have given a boost to the world economy, but recent forecasts for global growth have been ratcheted down, even as oil prices sink lower and lower. Does that mean the link between lower oil prices and growth has weakened?
Jason Bordoff, head the Center on Global Energy Policy at Columbia University, says there are still good reasons to believe cheap oil should heat up the world economy.
"Consumers have more money in their pockets when they're paying less at the pump," says Bordoff. "They spend that money on other things, which stimulates the economy."
Sara Johnson, director of global economic research at IHS, says the biggest gains goes to countries that import most or all of their oil — China, Japan, India, South Korea, Germany and France. The United states also remains a net importer of oil, despite huge increases in U.S. production from the shale oil boom.
As the list suggests, the countries most likely to benefit have big economies and lots of consumers.
But doesn't the extra money in the pockets of those countries' consumers mean an equal loss in oil-producing countries, making the total economic effect a wash? Not necessarily, says Johnson.
Many oil producers built up huge reserve funds when prices were high, she says — so "when prices fall they will draw [on] their reserves to support government spending and subsidies for their consumers."
Bordoff says Saudi Arabia, with reserves of around $600 billion, is a good example. A vast number of Saudi paychecks come from government employment. Using that money means that, when oil prices drop, "the economy doesn't feel it as directly, day to day, in terms of people's paychecks," he says. Even when oil prices fall, Saudi consumers can keep spending.
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Venezuela's Free-Fall
But not all oil producers have big reserves. In Venezuela, for instance, collapsing oil prices have sent its economy into free-fall.
"It's been ravaged with shortages of basic foodstuffs," Bordoff says. "You can't find everyday necessities, like toilet paper, on supermarket shelves."
Venezuela's inflation rate has skyrocketed to 800 percent, and the country's economic collapse is subtracting from global growth. To a lesser extent, growth in Nigeria, Russia and even in the United States is being hurt by the damage to their oil sectors.
Carl Weinberg, chief economist at High Frequency Economics, believes that the negative effects of plunging oil prices are swamping the positive effects of cheaper oil. He says the tip-off is a sharp decline in global trade, which has slumped partly because oil-producing nations can't afford to import as much as they used to.
"The value of world trade has gone down by 14 percent, year over year," says Weinberg, quoting figures from the International Monetary Fund. That's the biggest drop in the post-World War II period, except for the decline during the financial crisis of 2008, he says: "In fact we're talking about reducing world GDP growth from about 3 percent to about 1.5 percent, using the measures that the IMF uses — and that's a pretty catastrophic year."
Pressure On World Growth
IMF forecasters continue to expect global growth in the 3 percent range, but Weinberg doesn't think those numbers will hold up.
Both Jason Bordoff and Sara Johnson acknowledge the global economic benefit from a fall in oil prices today is likely lower than it was in the past. One reason is that more countries are big oil producers now, so the nations suffering from the price drop account for a larger share of the global economy.
Also, Bordoff says consumers, in the United States at least, are acting cautiously with the windfall they're getting at the gas pump.
"We're seeing, coming out of the Great Recession, that consumers are saving a larger percentage," says Bordoff, "rather than going out and spending it."
And a number of oil producing countries, including Saudi Arabia, are trimming their gasoline subsidies and raising taxes, Bordoff says, so the net savings for global consumers is not as big as the oil price plunge might suggest.
When reading this article I was very surprised to learn how all aspects of the economy are influenced by gasoline. As the price for oil becomes cheaper, oil producers do not see as high profits. However, "many oil producers built up huge reserve funds when prices were high" (NPR). Some countries have strong reserves, such as Saudi Arabia. Others have much weaker reserves, such as Venezuela, and have a declining economy as a result. As more countries become oil producers, these nations suffering from the price drop make up more of the global economy. Unfortunately, the price drop no longer has as positive an effect as it used to.
ReplyDeleteJonPaul Lambert Period 1
Bailey Wetzel-4th
ReplyDeleteI was surprised to learn that in some countries, lower gas prices does not always mean a better economy. "In Venezuela, for instance, collapsing oil prices have sent its economy into free-fall."(NPR).This is very frightening and makes me wonder how the US is impacted by lower gas prices.What happens when there is no gasoline left?
I think in general the article was trying to say that lower oil prices does not directly mean a great economy. I was surprised that the oil prices in Venezuela has sent the country in an economic epidemic. "Venezuela's inflation rate has skyrocketed to 800 percent, and the country's economic collapse is subtracting from global growth". This proves that the oil prices dropping do not always have a positive impact on economies.
ReplyDeleteAfter reading this document I have learned a lot more about oil and gas prices. After the gas prices dropped oil producers did not see high profits. Dropping the price of oil does not always have a good impact on the economy.
ReplyDeleteRichard hull period 2
In the past, falling oil prices have given a boost to the world economy, but recent forecasts for global growth have been ratcheted down, even as oil prices sink lower and lower. Does that mean the link between lower oil prices and growth has weakened? Jason Bordoff, head the Center on Global Energy Policy at Columbia University, says there are still good reasons to believe cheap oil should heat up the world economy (Cheap Oil Usually Means Global Growth). In my opinion I don't think that low gas prices will boost our economy. I think it takes more than just gas prices to raise the economy.
ReplyDeleteI think that the article was trying to say that its not going to help the economy to lower the oil prices. Lowering the gas prices will not always help that countries economy. . "In Venezuela, for instance, collapsing oil prices have sent its economy into free-fall."(NPR). Dropping the oil prices will not have a positive impact on our economy.
ReplyDeleteKaci Pebley
Period 2
After reading the article, I realized that when oil prices drop its not always for the best. For example, in Venezuela it was a bad thing. "Venezuela's inflation rate has skyrocketed to 800 percent, and the country's economic collapse is subtracting from global growth"(NPR). This shows that even though in the past lowering oil prices has meant economy growth, lowered oil prices are not always a good thing.
ReplyDeleteCourtney Hulsing
P.2
From reading this article. I have learned more about gas prices, and that gas has much more to it. I had no idea that when the prices drop or go up, it may not be for the best. "The country's economic collapse is subtracting from global growth"(NPR). This means that even when the gas prices are lower, it may not be something to get excited over, it might be ruining the oil sectors.
ReplyDeleteAlayna Texley
Per 2
I think the main idea of this article "Cheap Oil Usually Means Global Growth, But This Time Seems Different," is to inform the readers that the falling of gas prices does not reflect economic growth as much as it used to. Even though "Consumers have more money in their pockets when they're paying less at the pump," (Bordof Li. 11), this does not mean that the economy will boost greatly. Major economic growth usually occurs when countries have big economies and large consumers, such as other countries. "The biggest gains goes to countries that import most or all of their oil" (Johnson Li. 17).
ReplyDeleteBy the title, I wasn't too shocked to find that lower gas prices equal improving economy, yet it is still surprising (before reading the article and title). It makes sense that these lower prices hurt some. I was just so happy to have cheap gas that I didn't think about anything else. We really shouldn't take for granted basic necesities such as toilet paper since the decrease in gas prices has affected basics on the shelves in places like Venezuela.
ReplyDeleteAfter reading this article, I was informed about how price drops can actually have a negative affect. This article is explaining to the public that lowering oil prices are not helpful for the economy. Venezuela’s "collapsing oil prices have sent its economy into free-fall” (NPR). Dropping oil prices will not have a positive impact on our economy as some people may think. It’s interesting to think how much of an impact oil can have on an economy.
ReplyDeleteOlivia Lasecke
Period 2
I find it curious that so many aspects of the global economy is influenced by the oil-production. It makes one think, what did people do when oil production wasn't such a large industry. "In the past, falling oil prices have given a boost to the world economy, but recent forecasts for global growth have been ratcheted down, even as oil prices sink lower and lower."(NPR). This quote makes sense since in the past, the world economy grew as a whole and now there is unbalance among the different countries. I think that instead of focusing on how to create world economic growth, we should be worrying about creating a more equilibrium economy where countries that are falling behind gain support from other countries so growth is everywhere and not just in specific countries.
ReplyDeletePersonally I love how cheap gas prices are right now. It makes me happy because I save more of my money for other things. Although I can see how this could damage an economy "In Venezuela, for instance, collapsing oil prices have sent its economy into free-fall."(NPR). Such as has happened in Venezuela. I don't think this will happen in America because we have such a huge economy.
ReplyDelete-Zach Potter per5
The fact that gas is low makes me so happy. Down side is that it isn't good for the economy. Lowering oil prices is not good for the economy. Venezuela's economy is suffering because of this.
ReplyDeleteWhen we all see the gas prices go down, that makes everyone so happy. But when the prices go down,that means there is more oil to be burned and put back into the atmosphere. This is a classic example of supply and demand. When we are burning that carbon dioxide, it goes back into the atmosphere and it starts to make the ozone levels worse than they all ready are.
ReplyDeletethis could mean horrible things for our economy if we don't have gas price go down and it doesn't help then we could have bad things happen."In the past, falling oil prices have given a boost to the world economy, but recent forecasts for global growth have been ratcheted down, even as oil prices sink lower and lower. Does that mean the link between lower oil prices and growth has weakened?"this shows that gas is not connected to our economy witch can hurt our economy.
ReplyDeleteI understand that many people are getting laid off because of these lowering gas prices. I really am a fan of lowering gas prices though. My 35 gallon tank is much better when gas is 2 dollars.
ReplyDeleteI had no idea that the gas prices had so much of an impact on the economy. I knew that it was important but I didn't realize that it could send it into a "free-fall" such as in Venezuela. Though I am glad that the gas prices go down and make it easier for me, I don't believe it is worth the price of the potential destruction of the economy.
ReplyDelete~Sydney Rose Andrews per. 6
With the rise of gas prices, most people are gonna be rushing to go fuel up their hummers and all of their non-commercial cars. But, if people keep doing this, using up all of the oil, the prices of the gas will just keep going back up. People should only fuel up when they HAVE to, so that the gas prices can stay more level.
ReplyDelete