japanja
Why lower oil prices don’t always help the economy

Why lower oil prices don’t always help the economy

10-01-2018 | インサイト

Lower oil prices don’t necessarily translate into higher economic growth, says Robeco strategist Peter van der Welle.

  • Peter van der Welle
    Peter
    van der Welle
    Strategist

Speed read

  • Investors puzzled why low oil prices don’t trigger growth
  • US dynamics changed while Europe saw a slowdown
  • Oil price collapse coincided with low-growth environment

He says many investors have been surprised that the GDP in western economies has not been boosted in 2017 by the extra money in the pockets of consumers thanks to cheaper energy and gasoline. The price of benchmark Brent crude first began to fall in the summer of 2014, moving from a high of USD 115 a barrel to a low of USD 28 in January 2016. “The US and global economy-at-large continued to struggle throughout this period, continually lagging consensus growth estimates, despite the supposed benefit of lower oil bills,” says Van der Welle.

“For the US, there were two reasons why the benefits of lower oil prices were probably lower than expected. Firstly, as a result of the shale revolution, the US oil & gas sector has gained more importance in overall economic activity. Subsequently, the cuts in capital expenditure that accompanied the fall in the oil price as oil producers laid off rigs weighed more heavily on overall GDP growth than had been included in the forecasts.”

“Secondly, the proportion of US GDP that energy accounts for – its ‘energy intensity’ – was already on a steady downtrend, lowering the sensitivity of the sector to an oil price shock than had been experienced in the past.”

最新の「インサイト」を読む
最新の「インサイト」を読む
配信登録

Debunking a theory

Van der Welle says the theory that the money saved by oil-importing countries would have a greater economic impact than the revenue lost by the oil producers has largely been debunked. In the past, big oil importers such as European nations were seen as being more likely to treat the money saved from lower gasoline prices as income, and then spend it, which should in theory induce a net plus for the global economy.

However, negative growth surprises in advanced economies have been regularly reported since the oil price slump. This has led to a new view that higher spending by consumers fully mitigates the negative impact of the revenue-losing oil producers, but does not exceed it.

“In other words, it is a zero-sum game, and each opposing effect cancels the other out,” Van der Welle says. “But this zero-sum game story does not fully convince, as it implies that differences in oil price sensitivity at a country level almost perfectly hedge each other on a global scale.”

“Under this logic, say a USD 1 decline in the oil price causes an increase of 0.04% in cheaper oil imports, it should simultaneously imply a decrease of 0.04% in oil exports of the oil producers. But this does not take into account differences in fossil fuel reserves, the import/export ratio of oil, its production/consumption ratio and oil’s sectoral composition, all of which are relevant for the eventual impact of an oil price shock.”

Inelastic elasticity

Van der Welle says the story becomes even more complicated when oil price elasticity – its ability to influence a particular economy over time – is included. Different studies already report different oil price elasticities for the same group of countries, or even the same country, over time. For example, the IMF downgraded its 2017 GDP growth forecast for Venezuela to -12% from -7.4% in just three months, as the fallout from lower oil prices developed in a nonlinear fashion.

“Despite incidences of the severe economic hardship as seen in Venezuela after the oil price slump, the absence of evidence of a positive causal relationship between low oil prices in 2014-2016 and global economic activity does not mean that it is not there in some form,” Van der Welle surmises.

“Events usually play out with variable and long lags, especially in economic analysis. So, why wouldn’t the global cyclical upswing the world has been enjoying at least partly be due to the 2014-2016 oil price slump? In early 2016, the IMF said the ‘shot in the arm’ for the global economy accruing from low oil prices had yet to materialize, as paradoxically, the benefits would appear once oil prices had recovered somewhat.”

“The reason for the surmised delay was that the oil supply shock had occurred in a low-growth environment, where central banks had already run into the ‘zero lower-bound’ problem – they were unable to further reduce nominal interest rates in order to stimulate the global economy. In this situation, falling oil prices lower inflation and raise real interest rates, choking off economic activity.”

Recovery effects

Conversely, a recovery in oil prices would bring positive inflation surprises and the much-needed fall in real interest rates, spurring growth, he says. This can be seen in the graph below. “With hindsight, events have played out fairly well along these lines; we have experienced some reflation, and industrial production for OECD countries has indeed recovered as oil prices have rebounded,” Van der Welle explains.

“This in turn allowed the Fed to raise interest rates, moving away from the zero lower-bound problem. On the back of this, the decisive move away from the ‘bad equilibrium’ – the arrival of secular stagnation due to the zero lower-bound problem – has also fed optimism. This has become self-reinforcing, with producer confidence indices such as the German IFO indicator marking all-time highs in 2017.”

Van der Welle says there are other reasons why the positive response of economic activity to lower oil prices has been muted. The progressively higher taxation of gasoline in Europe has limited the ability of lower global crude oil prices to be passed on to lower retail gasoline prices, limiting the windfall available for European consumers.

“It all suggests that the perceived wisdom does not always manifest itself immediately,” he says.

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会