Sustained 10% increase in oil price only cuts 0.1% from growth 10% in US and EU

Ruusian oil industryRussian oil industry

Bankia Estudios | The sharp increase in oil prices produced by the attack on Saudi installations happened as a moment of weakness in the global economy with multiple centres of uncertainty (trade war, Brexit, global industrial recession, among others); however, it would have to be persistent and much more intense to derail global expansion.

What impact could it have on the Spanish economy?

The oil price influences macroeconomic aggregates through its impact on energy costs. Spain, as a net importer country, would be affected by an oil price shock in two ways: production costs and the current account balance. To those should be added the indirect effects of a lower economic growth among our main economic partners.

According to the Stability Programme 2019-2022, which the government sent to Brussels in April, an increase of 9 dollars a barrel would reduce GDP growth in 2019 by one tenth, in such a way that by the end of the forecast horizon the level of GDP would be 0.4% less that the base scenario. The base economic scenario starts from the hypothesis of a gentle fall of oil prices towards 65 dollars.

On the trade balance, we estimate that the increase in energy bills (11%) resulting from the rise in oil process, as well as the deprecation of the euro against the dollar (annual average in 2020 of 1.05) will mean a deterioration in the trade balance of some 5.5 Bn€, 0.4% of GDP.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.