WASHINGTON/NEW DELHI (Reuters) – Robust recovery in the United States, a moribund euro zone and slowing Chinese growth reflect global splits which plunging oil prices are likely to widen.
On the face of it, lower energy bills should give consumers and companies more money to spend and boost economic growth, at least for oil importers.
But for those countries facing stagnation or even deflation the prospect of downward pressure on prices is more worrying.
The likelihood is that a near 60 per cent fall in the price of oil – from above $115 in mid-2014 to just $50 – will see those already growing strongly pick up further, leaving the laggards trailing in their wake.
Central bankers in the United States and Europe have clearly expressed the divide over an oil dividend in recent weeks.
“It is a huge plus for consumers, for businesses,” San Francisco Fed President John Williams said on Monday. A drag from weak economies elsewhere in the world would not counteract that, he calculated.
Williams is not alone. Minutes of the Fed’s December meeting said some of those present thought “the boost to domestic spending coming from lower energy prices could turn out to be quite large”.
Compare that with European Central Bank chief economist Peter Praet, speaking on the last day of 2014, days before eurozone inflation turned negative for the first time since 2009.
“With the recent oil prices, inflation would be even lower, even substantially lower than expected so far,” he said, noting that in the past the ECB would have looked past external shocks such as this but could no longer afford to.
“In an environment … in which inflation expectations are extremely fragile we cannot simply ‘look through’.”
Markets are certain the ECB will launch a Fed-style government bond-buying programme with new money. Given that it may be curbed in some way to meet German concerns, there is much less certainty that it will deliver a jolt.
Most economists agree the US economy will benefit from low oil, which will harden expectations of an interest rate rise this year, but some see real stress elsewhere.
“You’ve got a handful of places that are seemingly doing very well – like the US, the UK, Canada – but it trails off pretty quickly after that,” said Carl Tannenbaum, chief economist at Northern Trust.