Moody’s: Low Oil Prices Will Not Help Global Growth

This assessment of global gross domestic product (GDP) stands similar to recent assessments by the World Bank and International Monetary Fund (IMF). Each recently downgraded its forecasts for worldwide economic expansion. Growth should stagnate in Japan and Europe, the two organizations predict, and China’s GDP improvement should fall to multiyear lows. The analysis from the two organizations has proved true already. The world’s largest economies, aside from the United States, have already demonstrated their struggles.

Moody’s “announcement” titled “Lower Oil Prices Would Boost Global Growth in the Next Two Years” leaves aside the issue of whether global oil prices might stay low that long. If they move higher, the trend could mute expansion even more. Moody’s supposes crude prices should be about $55 for Brent this year and $65 on average in 2016.

The assessment of Moody’s experts:

Lower oil prices will fail to give a significant boost to global growth in the next two years as headwinds from the euro area, China, Japan and Russia hold back economic activity, says Moody’s Investors Service in its quarterly Global Macro Outlook report.

Also:

Despite cheaper energy, Moody’s forecasts euro area GDP growth of just below 1% in 2015, broadly unchanged from 2014, before rising to 1.3% in 2016. Moody’s expects the benefits of lower oil prices to be small in the euro area.

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The total euro area economy has often been measured as large as that of the United States. A growth rate of under 1% means that the euro area economy has moved back toward a possible recession.

In terms of China, its economy should continue to cool. Moody’s said:

In China, cheaper oil will not stop the gradual and ongoing economic slowdown. Higher energy taxes and government-controlled prices in some energy and transport sectors will dampen the impact of lower prices.

Moody’s forecasts that China’s GDP growth will fall below 7% in 2015 from 7.4% in 2014. In 2016, GDP growth is forecast to fall to 6.5%.

The world’s largest economy will carry the rest of world on its shoulders, which is again similar to the World Bank and IMF forecasts:

Moody’s has raised its 2015 US GDP growth forecast to 3.2% from 3% in the last quarterly report and expects growth to remain strong at 2.8% in 2016.

But that will not be enough to entirely offset the global slowdown.

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