Sunday, December 20, 2015
Why oil price slump hasn't kickstarted global economy; The global impact of Fed rate rise; Malls lose some luster as holiday sales go online
1 Why oil price slump hasn’t kickstarted global economy (Kenneth Rogoff in The Guardian) One of the biggest economic surprises of 2015 is that the stunning drop in global oil prices did not deliver a bigger boost to global growth. Most macroeconomic models suggest that the impact on global growth has been less than expected – perhaps 0.5% of global GDP.
A decline in oil prices is to some extent a zero-sum game, with producers losing and consumers gaining. The usual thinking is that lower prices stimulate global demand, because consumers are likely to spend most of the windfall, whereas producers typically adjust by cutting back savings.
In 2015, though, this behavioural difference has been less pronounced than usual. One reason is that emerging market energy importers have a much larger global economic footprint than they did in the 1980s, and their approach to oil markets is much more interventionist than in the advanced countries.
Countries such as India and China stabilise retail energy markets through government-financed subsidies to keep price down for consumers. The costs of these subsidies had become quite massive as oil prices peaked, and many countries were already looking hard for ways to cut back. Thus, as oil prices have fallen, emerging market governments have taken advantage of the opportunity to reduce the fiscal subsidies.
At the same time, many oil exporters are being forced to scale back expenditure plans in the face of sharply falling revenues. Even Saudi Arabia, despite its vast oil and financial reserves, has come under strain, owing to a rapidly rising population and higher military spending associated with conflicts in the Middle East.
Also restraining growth is a sharp decline in energy-related investment. After years of rapid growth, global investment in oil production and exploration has fallen by $150bn in 2015. Eventually, this will feed back into prices, but only slowly and gradually: futures markets have oil prices rising to $60 a barrel only by 2020.
In short, oil prices were not quite as consequential for global growth in 2015 as seemed likely at the beginning of the year. And strong reserve positions and relatively conservative macroeconomic policies have enabled most major producers to weather enormous fiscal stress so far, without falling into crisis. But next year could be different, and not in a good way – especially for producers.
2 The global impact of Fed rate rise (Kamal Ahmed on BBC) After nearly a decade of what has been, essentially, a global economic effort - and experiment - to save the world from financial calamity, the Federal Reserve, the central bank to the world's largest economy, has decided, finally, to try a touch of "normalisation".
I'm not sure anyone thought that, eight years on, we would still be in a near zero interest rate world. Or, in cases such as the eurozone, a negative interest rate world. The financial crisis - a banking crisis which so damaged confidence and put the world in "risk-off" mode - more fundamentally damaged the global economy than many initially predicted.
Now the Federal Reserve has moved interest rates up a small notch. When America stirs, the rest of the world takes notice. Rising US interest rates could mean higher debt repayments for emerging market governments and businesses - as the amount owed is denominated in dollars.
And with higher interest rates in America, investment capital will be encouraged across the Atlantic and away from Asia in the hunt for better returns. That could affect Europe as well.
On the upside, the stronger dollar which has followed the rise might be good for European and Asian economies as it means exports to America are cheaper. Savers who have seen years of very low interest rates are likely to heave a sigh of relief as, finally, the world starts approaching economic normality.
3 Malls lose some luster as holiday sales go online (San Francisco Chronicle) More often shoppers in the US are making the decision to sit on their couches rather than head to stores this holiday season. Online sales growth so far this holiday season is surpassing growth in sales at physical stores, according to First Data, which analyzed online and in-store payments from Oct. 31 through Monday.
Sales growth for stores is up 2 percent, while online sales rose 4.6 percent, according to First Data. Total spending, including sales in both physical stores and online, climbed 2.4 percent, stronger than the 1.8 percent growth during the same period last year.
While physical stores still account for the majority of spending, the uneven growth between buying at locations and on websites signals the continuation of a big shift in how US consumers are shopping.
The overall shift to online spending is largely due to more retailers working to improve their websites and offer speedier delivery on orders placed online. As a result, shoppers, who increasingly are looking for convenience, are spending more of their holiday budgets online.