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15 Jan 2015
The ongoing oil decline might add 135bp to global GDP – GS
FXStreet (Barcelona) - Analysts at Goldman Sachs share the relationship between oil and GDP – global and of oil exporters, anticipating that the ongoing oil decline may add 135bp to global GDP growth, while emerging market oil exporters might see a 350bp hit to their real GDP.
Key Quotes
“A simple back of the envelope calculation that directly translates a decline in oil prices into a proportional decline in GDP suggests that, given a 60% decline in oil prices (which is roughly the size of the decline in front-month WTI crude oil over the last six months), nominal GDP in Kuwait and Saudi Arabia would decline by more than 25%. While a jarringly large number, this is only slightly greater than the damage experienced in 2009.”
“While indicative of where stresses could emerge, any ‘static’ calculation based on output shares needs to be interpreted carefully. First, many of the largest oil revenue countries, which would face the greatest headwinds, are also rather small. So the local growth hit would likely have a subdued direct impact on growth globally.”
“Moreover, these quick and dirty numbers do not capture any of the beneficial global offsets from lower oil prices. In our previous work, we estimated that a 20% decline in oil prices would reduce the real GDP of emerging market oil exporters by about 120bp on average. In the current context, that suggests about a 350bp hit to real GDP, given the roughly 60% decline in oil prices so far. While significant, the gains elsewhere more than offset these losses.”
“Globally, we estimate that each 20% decline in oil is a positive 45bp boost to global real GDP, suggesting that the ongoing oil declines may add 135bp, globally.”
Key Quotes
“A simple back of the envelope calculation that directly translates a decline in oil prices into a proportional decline in GDP suggests that, given a 60% decline in oil prices (which is roughly the size of the decline in front-month WTI crude oil over the last six months), nominal GDP in Kuwait and Saudi Arabia would decline by more than 25%. While a jarringly large number, this is only slightly greater than the damage experienced in 2009.”
“While indicative of where stresses could emerge, any ‘static’ calculation based on output shares needs to be interpreted carefully. First, many of the largest oil revenue countries, which would face the greatest headwinds, are also rather small. So the local growth hit would likely have a subdued direct impact on growth globally.”
“Moreover, these quick and dirty numbers do not capture any of the beneficial global offsets from lower oil prices. In our previous work, we estimated that a 20% decline in oil prices would reduce the real GDP of emerging market oil exporters by about 120bp on average. In the current context, that suggests about a 350bp hit to real GDP, given the roughly 60% decline in oil prices so far. While significant, the gains elsewhere more than offset these losses.”
“Globally, we estimate that each 20% decline in oil is a positive 45bp boost to global real GDP, suggesting that the ongoing oil declines may add 135bp, globally.”